Warner Bros. Discovery (WBD): A Hidden Gem in the Streaming Race?

Warner Bros. Discovery (WBD) has faced relentless scrutiny over its declining linear TV revenues and uneven streaming performance, yet its stock remains undervalued compared to peers. With an enterprise value/Earnings Before Interest, Taxes, Depreciation, and Amortization (EV/EBITDA) multiple of just 5.28—far below industry averages—investors may be overlooking key catalysts driving long-term value. Let's dissect whether a potential 39% upside is justified.

Valuation: A Discounted Bargain?

Warner Bros. Discovery's EV/EBITDA multiple of 5.28 (as of May 2025) sits well below the sector median of 8.67 and lags peers like Netflix (12.5x) and Disney (10.8x). This discount reflects skepticism around its debt-heavy balance sheet and the decline of traditional media. However, two critical factors suggest the market is undervaluing WBD's future potential:
- Streaming Momentum: Its streaming division's adjusted EBITDA surged 295% year-over-year to $339 million in Q2 2025, driven by subscriber growth (122.3 million globally) and cost discipline.
- Debt Reduction: Net leverage improved to 3.8x, down from 4.5x in 2024, with $2.2 billion repaid in Q1 alone. Free cash flow projections of $2.2 billion for 2025 further strengthen its liquidity position.

Growth Catalysts: Overlooked Drivers of Value

The market's focus on near-term challenges obscures three critical growth levers:

1. Streaming Expansion and Localization

Warner Bros. is aggressively targeting emerging markets. HBO Max plans to enter 45+ new markets by 2026, prioritizing Asia-Pacific and Latin America. This strategy, though diluting average revenue per user (ARPU), positions the company to capitalize on untapped subscriber growth. Localized content investments—like The Eastern Gate in Asia—aim to retain users in these regions long-term.

2. Corporate Restructuring: A Game-Changer?

The planned split into two public companies—Streaming & Studios (focused on premium content and streaming) and Global Networks (managing linear TV and news)—could unlock $5–7 billion in value. By separating legacy linear businesses from high-growth streaming, WBD aims to attract sector-specific investors and reduce operational complexity. The spin-off, expected by mid-2026, could also enhance flexibility in capital allocation and debt management.

3. Content Smoothing and Cost Discipline

WBD's theatrical and game revenue volatility (down 27% YoY in Q1 2025) is being addressed through strategic content timing and AI-driven efficiencies. For instance, the company reduced studio costs by 29% YoY in Q1, while prioritizing hit-driven franchises like The White Lotus and Superman. Vertical integration—such as licensing internal content across platforms—also improves margins, as seen in the $765 million in intra-divisional licensing revenue in Q1.

Risks to Consider

• Spinoff Execution: Delays or unfavorable tax treatments could disrupt the value-unlocking potential.
• ARPU Pressure: International expansion may continue to weigh on per-user revenue.
• Linear Declines: Legacy networks face subscriber losses (down 9% YoY), though repurposing content into FAST channels offers a partial remedy.

Investment Thesis: Buy the Dip, but Mind the Risks

At a stock price of $33.50 (as of June 2025), WBD trades at 7.2x forward EV/EBITDA—a 30–40% discount to peers. Analysts' average target of $45–$50 implies a 39% upside, which could materialize if the spinoff proceeds smoothly and streaming EBITDA continues to accelerate. However, investors should remain cautious on near-term revenue headwinds and macroeconomic pressures on discretionary spending.

Final Verdict

Warner Bros. Discovery's undervaluation stems from short-term challenges, but its streaming trajectory, debt reduction, and strategic reorganization suggest a compelling long-term opportunity. For investors with a 12–18-month horizon, WBD could be a value play worth considering—provided the spinoff executes flawlessly. The next catalysts to watch: subscriber growth metrics, free cash flow realization, and regulatory clarity on the corporate split.

In a sector where streaming dominance dictates survival, WBD's underappreciated strengths may finally catch up with its valuation.