WBD's Earnings: The Beat Was Priced In, The Deal Is the Real Story

Warner Bros. Discovery's fourth-quarter results delivered a classic expectation gap. The company posted revenue of $9.46 billion, a slight beat against the $9.38 billion estimate. Yet the headline figure masks a deeper story: sales fell 5.7% year on year. This is the reality the market had already priced in. The real surprise came on the bottom line, where the company reported a GAAP loss of $0.10 per share, a significant miss against the $0.00 estimate. The stock's flat reaction is the clearest signal that the beat was already anticipated, while the loss miss confirmed lingering operational pressures.

The expectation gap is most evident when comparing the GAAP loss miss to the adjusted picture. While the headline earnings were a disappointment, the company's underlying operational engine showed improvement. It posted adjusted EBITDA of $2.22 billion, beating the $2.15 billion estimate. This beat, coupled with an operating margin of 3.7%-up sharply from 1.6% a year ago-signals that cost discipline is working even as revenue declines. For investors, this is a mixed signal. The adjusted beat suggests management is executing on efficiency, but the GAAP loss miss and the broader revenue decline highlight that the core business is still under pressure.

The bottom line is that the market had already bought the streaming growth narrative. The revenue beat was a whisper number that was already in the price. The subsequent miss on earnings, however, reset expectations on profitability. When the core financials don't meet the consensus, even a top-line beat can fail to move the needle. The stock's flat performance reflects this dynamic: the good news was priced in, and the bad news was just enough to prevent a pop.

Streaming Growth: Was the 15M Subscriber Beat Already Priced In?

The streaming subscriber count was the standout positive in the report, but for a stock caught in an acquisition tug-of-war, even a strong beat can be a whisper number. Warner Bros. Discovery's streaming platform hit 132 million subscribers, a 15 million jump from the fourth quarter of 2024. That growth, driven by international launches in Germany and Italy, was a clear operational win. Yet, given the stock's flat reaction, it's likely the market had already priced in this expansion.

Management's guidance provides the real forward view. The company expects to finish the first quarter of 2026 with more than 140 million subscribers and is on track to reach more than 150 million by year-end. This is a concrete, high-visibility target that aligns with the company's previous predictions. For potential acquirers like Netflix and Paramount, this subscriber trajectory is a major asset. A larger, more valuable streaming base increases the strategic premium each bidder is willing to pay.

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The key question for investors is whether this growth story is still a catalyst or a priced-in fact. The stock's lack of a pop suggests the market sees the subscriber beat as a given, not a surprise. The real value driver now is the acquisition outcome, not the underlying business growth. The subscriber numbers are important for the final deal value, but they are no longer the independent news that moves the stock. In this setup, the beat was already in the price.

Linear TV Decline: A Worse-Than-Expected Reality Check

While the streaming narrative gets the headlines, the reality check for Warner Bros. Discovery is happening on linear TV. The loss of NBA live rights is creating a tangible, accelerating drag on the core advertising business. In the fourth quarter, that absence created a 4% drag on advertising revenue. The market consensus likely expected some hit, but the trajectory is worse than priced in. Management projects that impact will grow to 7% in the first quarter of 2026 and then surge to 20% in the second quarter as the comparison to last year's NBA postseason becomes starker.

Management's response is a classic forward-looking assumption: they claim the associated cost savings will more than offset this revenue loss. The company stated that the current NBA pact, which focuses on highlights and production of Inside the NBA, is beginning to yield significant cost savings and that the advertising revenue loss "will be more than offset by an associated improvement in operating expenses." This is a key operational bet. It hinges on the company's ability to cut costs faster than the advertising revenue declines, a discipline that has shown some success elsewhere but now faces a steep quarterly ramp.

This pressure is the tangible reality check against the optimistic subscriber growth story. While the streaming platform adds 15 million users, the linear business is shedding a major revenue driver. The 20% advertising drag in Q2 is a concrete headwind that the market must now weigh against the promise of a 150 million subscriber base. For now, the guidance suggests management believes the cost savings will cover the gap. But until those savings materialize, this is a clear operational overhang that tempers the overall growth narrative.

The Catalyst: Deal Uncertainty Overwhelms Earnings

The muted stock reaction to the earnings report is a classic case of the market looking past the quarterly print. With a competing takeover bid now in play, the company's financial results have become secondary news. The overriding event is a high-stakes auction for control, and that has reset all expectations.

The board's decision to cancel the earnings call, stating CEO David Zaslav would not answer questions, is the clearest signal of this shift. In a normal earnings season, that would be a red flag. Here, it underscores that the board's entire focus is on the Paramount-NFLX deal, not on quarterly guidance. The market understands that the real story is a boardroom negotiation, not a financial report.

The details of that negotiation are now the catalyst. Paramount Skydance has raised its offer to $31 per share, a significant jump from its previous $30 bid. The board has determined this revised proposal could result in an offer superior to its deal with Netflix. Under the terms of the existing merger agreement, if the board makes that determination, Netflix gets a four-day window to improve its own $27.75 per share bid. This creates a clear, time-bound auction dynamic that overshadows any operational beat or miss.

The bottom line is that the stock's flat performance suggests the market is now pricing in the potential for a higher bid. The earnings print, with its beat and miss, was already in the price. The real expectation gap now is between the current $27.75 Netflix offer and the possibility of a $31 Paramount deal. For investors, the quarterly numbers are noise. The stock's path is now dictated by the outcome of this four-day counteroffer window and the board's final determination. The acquisition is the only game in town.