Warner Bros. Discovery: A Streaming Turnaround with Undiscovered Upside?

Warner Bros. Discovery (WBD) is often overlooked in the streaming wars dominated by Netflix (NFLX) and Disney (DIS). But beneath its debt-laden reputation, WBD is executing a strategic pivot to streaming that could unlock significant value. Let's dissect its subscriber growth trajectory, margin improvements, and valuation advantages—and why this might be a buying opportunity.

Subscriber Growth: Catching Up with a Focus on Global Markets

Warner Bros. Discovery added 5.3 million subscribers in Q1 2025, pushing its total streaming base to 122.3 million globally. While trailing Netflix's ~310 million and Disney's ~236 million (as of late 2024), WBD's growth is accelerating, especially in high-potential international markets. International subs rose from 59.8 million to 64.6 million in Q1 alone, while domestic growth was modest.

The company's content strategy is a key driver. Hits like The Last of Us and The Pitt are fueling retention, while localized originals (e.g., The Eastern Gate in Europe) are resonating in new markets. WBD's plan to launch Max in Australia, Turkey, and other regions by 2026 suggests further upside.

Margin Improvements: Streaming's Profitability Turnaround

WBD's streaming segment is turning the corner. Revenue rose 9% YoY to $2.66 billion in Q1, with adjusted EBITDA hitting $339 million—a stark contrast to its $966 million net loss in Q1 2024. The shift from linear TV (which saw a 10% revenue decline) to streaming is paying off.

While Netflix and Disney boast higher margins, WBD's margin expansion is faster. The ad-supported tier (up 35% in revenue) is critical here. Even as average revenue per user (ARPU) dipped 9% to $7.11—due to cheaper international markets—the company is prioritizing subscriber scale over short-term ARPU. This is a smart trade-off in a market where dominance requires mass reach.

Valuation: A Discounted Play in a Premium Sector

WBD is trading at a staggering discount to peers. Its price-to-sales (P/S) ratio of 1.1x is half of Netflix's 2.3x and Disney's 2.7x. Even as WBD's streaming revenue grows, the market is pricing in legacy TV declines, ignoring its streaming potential.

This undervaluation is irrational. WBD's $2.7 billion in streaming revenue (Q1 2025) is only ~15% behind Disney+'s $3.2 billion (Q3 2024) and growing faster. At its current valuation, WBD is effectively a $30 billion streaming company (vs. Disney's $140 billion and Netflix's $200 billion)—a clear mispricing.

Strategic Moves: Beyond Subscribers to Sustained Growth

WBD isn't just chasing numbers. Its content discipline—focusing on premium, binge-worthy originals—differentiates it from competitors. The shift to vertical integration (retaining content for its platforms) reduces licensing costs, boosting margins long-term.

Moreover, the FAST (Free Ad-Supported Streaming) strategy is a hidden gem. Repackaging linear TV into ad-supported tiers could turn its declining TV business into a profit center. With ~70 million Netflix ad users and rising demand for cheaper options, WBD's hybrid model is well-timed.

Debt Challenges: Manageable, Not Catastrophic

Critics point to WBD's $4.0 billion debt post-Q1 2025. But the company reduced debt by $2.2 billion in the quarter and aims to keep leverage below 4.0x. Its focus on cost discipline (e.g., repurchasing $1.5 billion in notes to save interest) shows financial prudence.

Meanwhile, streaming's cash flow is improving. The $24 billion hybrid revenue opportunity by 2029 (combining ads and subs) suggests WBD's model can sustainably reduce debt over time.

Investment Thesis: Buy the Dip, Target $30–$40 by 2026

WBD is a value play with catalysts:
1. Max's global rollout in key markets (Australia, Germany) by 2026.
2. Margin expansion as streaming scales and ad revenue grows.
3. Valuation re-rating once the market recognizes its discounted P/S multiple.

Risks include execution delays and macroeconomic pressures, but WBD's streaming tailwinds outweigh these concerns.

Action: Accumulate WBD on dips below $20. A $30–$40 price target by end-2026 seems achievable if it meets its 150 million subscriber goal and improves margins to 15–20%.

Conclusion

Warner Bros. Discovery is the undervalued disruptor in streaming. Its subscriber growth, margin turnaround, and strategic moves make it a compelling buy—even with debt. As the world shifts to digital-first entertainment, WBD's pivot could finally pay off.

Investing in WBD requires patience, but the reward of catching its undervalued upside could be substantial.