In early trading on Wednesday, Warner Bros Discovery (WBD) experienced a sharp 15% drop in its stock value, following the company’s acknowledgment of sustained weakness in the advertising market. This admission raised concerns regarding the company’s visibility for the year 2024.
At the time of this publication, Warner Bros Discovery Inc stock (WBD) has witnessed a decline.
Warner Bros Discovery Inc
Current Price: $9.76
Change : -1.85
Change (%): (-15.93%)
Volume: 21.9M
Source: Tomorrow Events Market Data
During the post-earnings conference call, CFO Gunnar Wiedenfels addressed the challenges anticipated for 2024, stating, “it will have its share of complexity, particularly as it relates to the possibility of continued sluggish ad trends.” He further emphasized that achieving the targeted leverage range by the end of 2024 would be unlikely without a substantial recovery in the TV ad market.
WBD, mirroring the struggles of its counterparts in the media industry, grappled with an unfavorable advertising environment. This past summer, the company announced plans to realign its advertising sales division, including a restructuring of its leadership team, in response to weakened ad demand.
In Q3, network advertising revenue plummeted by 13% compared to the same period the previous year, mirroring a similar drop seen in Q2.
WBD reported a total of 95.1 million streaming subscribers for the third quarter, marking a decrease of 700,000 global subscribers since the close of the second quarter. The company introduced a new sports tier on its Max service just last month, following the debut of CNN Max, a 24/7 streaming news service, in late September as part of an open beta on the Max platform.
CEO David Zaslav expressed optimism in the earnings release, noting that both new offerings “are showing early signs of contributing to increased engagement and lower churn on Max.”
While subscriber growth fell short of consensus estimates, streaming losses were reversed. In the third quarter, the company reported a direct-to-consumer (DTC) adjusted EBITDA of $111 million, marking a $745 million year-over-year improvement.
Earnings per share for the third quarter amounted to a loss of $0.17, wider than the anticipated loss of $0.08 per share according to analysts, yet a notable improvement from the previous year’s loss of $0.95.
The company’s revenue of $9.98 billion aligned with consensus estimates compiled by Bloomberg and showed a 1% increase compared to Q3 2022 when excluding foreign exchange (FX).
Impressively, free cash flow surged to over $2 billion, surpassing analysts’ expectations. This boost was attributed largely to reduced content spending resulting from Hollywood strikes and ongoing post-merger synergies.
Wells Fargo analyst Steve Cahall reacted positively to the report, stating, “WBD is ahead on deleveraging with 2023 free cash flow estimates likely moving higher.” Cahall, who maintains an Overweight rating on the stock and a $20 price target, noted the industry-wide trend of improved direct-to-consumer profits and shifted attention to the challenges of 2024 EBITDA and deleveraging in the face of persistent Networks pressure.
A notable bright spot in the earnings report was the box office performance. Total revenue from the studios divisions amounted to $3.2 billion, reflecting a 3% increase excluding foreign exchange compared to the previous year’s quarter. This boost was largely driven by the record-breaking success of “Barbie,” which debuted in July.
The company announced that “Barbie” secured its place as the highest-grossing film in Warner Bros. history, raking in nearly $1.5 billion in global box office revenue. However, TV revenue saw a significant decline, primarily attributed to specific large licensing deals from the previous year and the impact of the WGA and SAG-AFTRA strikes, resulting in a 22% year-over-year drop in network content revenue to $215 million. This contributed to an overall 7% decline in network revenue to $4.87 billion for the quarter.
The company reaffirmed its expectation, originally stated in September, of full-year adjusted EBITDA in the range of $10.5 billion to $11 billion, a slight adjustment down from the prior low-end range of $11 billion to $11.5 billion.
Source: Yahoo Finance
