icon
icon
icon
icon
Upgrade
icon

Warner Bros. Discovery shares continue downward spiral

AInvestFriday, Feb 23, 2024 10:35 am ET
3min read

Warner Bros. Discovery (WBD) reported Q4 earnings after the close on Tuesday. There has been a lot of M&A speculation around the company as concerns remain about its ability to work as a standalone in the ultracompetitive streaming wars. The recently announced sports package deal with Disney and Fox Sports has also garnered plenty of attention. 

The speculation and flurry of deals has done little to assuage investor concerns as shares of WBD have been in a downward trend since hitting $78 back in March 2021. Investors wanted to see some signs of a turnaround in this report. Instead, they saw another top and bottom line miss from the company which has sent shares down 12% in early trade. 

Q4 total revenues were $10,284 million, a 7% ex-FX decrease compared to the prior year quarter. Net loss available to Warner Bros. Discovery, Inc. was $(400) million, including $1,699 million of pre-tax amortization driven by acquisition-related intangibles and $75 million of pre-tax restructuring expenses. Q4 total Adjusted EBITDA was $2,471 million, a 5% ex-FX decrease compared to the prior year quarter. Cash provided by operating activities increased to $3,578 million and reported free cash flow increased to $3,310 million.

Studios revenues decreased 18% ex-FX to $3,173 million compared to the prior year quarter, with content revenue decreasing 20% ex-FX and theatrical revenue increasing due to the larger release slate in the current year quarter. The impact of the WGA and SAG-AFTRA strikes and certain large licensing deals in the prior year negatively impacted TV revenue, while games revenue increased meaningfully due to the continued performance of Hogwarts Legacy.

Studios operating expenses decreased 15% ex-FX to $2,630 million compared to the prior year quarter, with costs of revenues decreasing 26% ex-FX, primarily driven by lower TV content expense, including strike-related impacts, partially offset by higher games content expense. Studios Adjusted EBITDA decreased 30% ex-FX to $543 million compared to the prior year quarter.

Networks revenues decreased 8% ex-FX to $5,037 million compared to the prior year quarter, with distribution revenue decreasing 3% ex-FX and advertising revenue decreasing 14% ex-FX, primarily due to audience declines in domestic general entertainment and news networks and soft linear advertising markets mainly in the U.S. and certain international markets. Networks operating expenses decreased 7% ex-FX to $2,829 million compared to the prior year quarter, primarily driven by lower international sports rights fees and lower domestic general entertainment content expense.

Q4 total Adjusted EBITDA was $2,471 million, a 5% ex-FX decrease compared to the prior year quarter. Cash provided by operating activities increased to $3,578 million and reported free cash flow increased to $3,310 million. Global DTC subscribers were 97.7 million at the end of Q4, which included 1.3 million subscribers from the acquisition of BluTV. Global DTC ARPU was $7.94, a 7% ex-FX increase vs. the prior year quarter.

Total DTC subscribers were 97.7 million, which included 1.3 million subscribers from the acquisition of BluTV. Excluding BluTV and TNT Sports Chile, subscribers increased by 0.5 million vs. the end of Q3. Global DTC ARPU was $7.94, a 7% ex-FX increase from the prior year quarter after adjusting prior periods for the transfer of TNT Sports Chile.

DTC revenues increased 3% ex-FX to $2,529 million compared to the prior year quarter, primarily attributable to new partnership launches, price increases in the U.S. and certain international markets, favorable mix shifts from wholesale to retail, and the transfer of TNT Sports Chile to DTC from Networks.

In early December, HBO and Max brands announced a multiyear pay-1 U.S. output deal with A24, bringing the award-winning entertainment company's theatrical film slate exclusively to Warner Bros. Discovery's HBO, Max, and Cinemax. 

Recently, Wells Fargo's Steven Cahall downgraded WBD to Equal Weight, stating that the prospect of CMCSA for WBD has been talked down, and even if it makes sense, there is no urgency in an election year. PARA, or some of its assets like CBS, are or could be available, but equity investors have a very limited tolerance for more debt regardless of the strategic rationale. This means WBD's opportunities are primarily organic. Cahall forecasted a much stronger HBO slate in '24 but also continued Networks pressures. The target was lowered from $16 to $12, and EBITDA estimates were moved from $10.5bn/$11.2bn to <$10bn/$10.4bn or -5%/-7%. Cahall also abandoned his rerating thesis given the earnings challenges.

In conclusion, Warner Bros. Discovery, Inc. reported Q4 earnings with a decline in revenues and earnings. The company's total revenues decreased by 7% ex-FX compared to the prior year quarter, and net loss available to Warner Bros. Discovery, Inc. was $(400) million. However, the company's total Adjusted EBITDA decreased by 5% ex-FX compared to the prior year quarter, and cash provided by operating activities increased to $3,578 million. The company's global DTC subscribers were 97.7 million, with a 7% ex-FX increase in global DTC ARPU compared to the prior year quarter. The company's total DTC subscribers increased by 0.5 million vs. the end of Q3, excluding BluTV and TNT Sports Chile. The company's DTC revenues increased by 3% ex-FX compared to the prior year quarter.

Overall, Warner Bros. Discovery, Inc. faces challenges in the Networks segment, with revenues and earnings decreasing. However, the company's Studios segment has shown improvement, with Studios Adjusted EBITDA decreasing by 30% ex-FX compared to the prior year quarter. The company's DTC segment has also shown growth, with an increase in subscribers and revenues. The company's future success will depend on its ability to grow its Studios and DTC segments while managing the challenges in the Networks segment.

$WBD(WBD)

Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.