Warner Bros. Discovery: Streaming Dominance and Margin Expansion Signal a Turnaround – Buy Now Before the Revaluation

Warner Bros. Discovery (WBD) has positioned itself at a pivotal inflection point, as revealed in its recent MoffettNathanson presentation. The company’s strategic pivot to premium content consolidation, ruthless cost discipline, and accelerated global streaming penetration are now poised to unlock significant value for shareholders. With subscriber growth surging, margin improvements materializing, and a clear roadmap to shed legacy liabilities, WBD is primed for a revaluation that investors cannot afford to miss.

The Catalyst: A New Era for WBD’s Streaming Engine

The company’s Q1 2025 results underscore a stark bifurcation: while legacy linear TV and studio divisions face headwinds, the streaming segment is firing on all cylinders. Subscribers rose by 5.3 million globally to 122.3 million, with adjusted EBITDA surging 296% year-over-year to $339 million. This growth, paired with a $1.3 billion annual streaming profit target, marks a decisive shift toward profitability.

The rebranding of HBO Max to reinforce its premium content reputation (think The Last of Us and The White Lotus) is a masterstroke. CFO Gunnar Wiedenfels emphasized that this move aims to command higher lifetime value (LTV) from subscribers, particularly in international markets. With ad revenue up 35% in Q1, WBD is also monetizing its streaming audience more effectively, blending ad-supported tiers with ad-free subscriptions to maximize revenue per user.

Cost Discipline: Cutting the Fat, Fueling Growth

WBD’s most compelling advantage is its relentless focus on margin expansion. The company has slashed $19 billion in debt since its merger inception, targeting a leverage ratio of 2.5–3x, and has abandoned unprofitable ventures like NBA rights for TNT—a $300 million annual cost drag. This strategic pruning of “rental businesses” (as CEO David Zaslav terms sports) allows WBD to focus capital on high-margin franchises and hit-driven content.

The studio division’s recent rebound—driven by blockbusters like A Minecraft Movie ($875 million globally) and Sinners ($250 million+)—demonstrates the power of a process-driven, data-oriented approach to content creation. By prioritizing quality over quantity and reducing exposure to box office flops, WBD aims to hit a $3 billion studio EBITDA target by year-end.

Global Expansion: The Undervalued Growth Engine

WBD’s streaming ambitions don’t end at U.S. borders. The company is leveraging its $2.7 billion in global streaming revenue (up 8% year-over-year) to penetrate high-growth markets. Partnerships like Disney+’s bundled offering in the U.S. and Sky in Europe provide low-cost, high-LTV subscriber growth, while localized content strategies in regions like Poland (via TVN) are yielding affiliate revenue growth for five consecutive quarters.

The goal? 150 million subscribers by late 2026—a target supported by a 35% annual growth in ad revenue and a premium pricing model. This international push, combined with HBO Max’s rebrand, positions WBD to capitalize on the global shift to premium streaming—a $100 billion opportunity.

Addressing the Risks: A Balanced Playbook

Critics will point to linear TV ad declines (down 11%), sports rights costs, and macroeconomic pressures. But Wiedenfels’ answers are clear:
- Linear networks will remain a cash cow for now, with international affiliate revenue growth offsetting domestic declines.
- Studio volatility is mitigated by process discipline and hit-driven content pipelines (e.g., The Lord of the Rings: The Rings of Power Season 2).
- Macro risks are being neutralized by a two-pillar strategy: streaming’s rising margins and the potential spin-off of legacy cable networks (CNN, HGTV) to unlock trapped value.

The CFO’s frustration with WBD’s 25% undervaluation relative to its intrinsic worth is justified. At $18.50, the stock trades at a 50% discount to peers like Netflix and Disney, despite its premium content library and structural improvements.

Why Act Now?

The catalysts are clear:
1. Streaming Profitability: The $1.3 billion target is within reach, with Q2’s studio rebound and margin gains.
2. Spin-Off Potential: Separating the cable division could unlock $3–5 billion in value by isolating growth assets.
3. Undervalued Assets: HBO’s premium brand, Mad Max, and global franchises are undervalued in the current share price.

The $453 million net loss in Q1 2025 is a blip on the radar of a company now laser-focused on execution. With synergies materializing and costs under control, WBD is no longer a “value trap” but a value creator.

Final Call: Buy WBD Before the Revaluation

The stock’s current price fails to reflect WBD’s transformation into a premium streaming powerhouse with a fortress balance sheet and a clear path to $5 billion in annual EBITDA. The MoffettNathanson presentation was a clarion call: WBD is no longer a merger of chaos but a strategic machine ready to dominate the next era of entertainment.

Investors who act now—buying ahead of potential positive guidance or a spin-off announcement—will secure a seat at the table as WBD’s valuation resets. The time to act is now.

Risks: Ad revenue volatility, international competition, and execution risks around content hits.

Investment Action: Buy WBD stock at current levels. Set a target of $25–$30 by year-end as streaming profitability and asset spin-offs unlock value.