Shares of Warner Bros. Discovery (WBD) fell as much as 12% in early trading on Thursday after the company reported disappointing second-quarter earnings on Wednesday that fell short of expectations on both revenue and profit.
The company took a huge $9.1 billion impairment charge related to its television networks division after a major media rights deal with the NBA fell through and it filed a lawsuit against the NBA, alleging that the NBA “wrongfully rejected” its offer for those rights.
The company took a $11.2 billion loss in impairments and charges last quarter, including $2.1 billion in additional charges related to the merger. Additionally, the company reversed previous profit trends in its streaming business, even though it added about 4 million subscribers in the quarter, while its traditional TV division continued to decline.
Wall Street analysts weighed in on the report on Thursday, with at least one suggesting it was “unlikely” that things would get worse for the media giant.
KeyBanc analyst Brandon Nispel, who rates the stock overweight, said the company’s studio business is likely to perform better in 2025 compared to 2024, and streaming could help offset the continuing accelerating decline of linear networks.
Warner Bros. Discovery CEO David Zaslav said on the company’s earnings call that the streaming division’s profitability will be positive in the second half of the year, expecting “even stronger subscriber growth” in the current quarter and predicting the division’s EBITDA to reach “at least” $1 billion in 2025.
Still, Zaslav noted that changing industry trends were the primary driver of the impairment charge, telling investors on a conference call, “It’s fair to say that even two years ago, the market valuation and real world outlook for legacy media companies was quite different than it is today. This impairment is a recognition of this and brings our carrying value more in line with our future outlook.”
WBD CFO Gunnar Wiedenfels added that the second quarter had “a number of triggering events, including the difference between the current market capitalization and the company’s book value, the continued weakness in the U.S. advertising market and uncertainty regarding rights renewals for affiliates and sports, including the NBA.”
“While we do not downplay the magnitude of this impairment, we believe it is equally important to recognize that the flipside reflects a value shift across our business model and our belief and confidence in the growth and value opportunities across our studios and our global direct-to-consumer businesses,” he said.
The story continues
Warner Bros. Discovery has struggled in recent quarters, with profits hit by a weak linear advertising environment and pressure on affiliate fees. REUTERS/Eric Gaillard/File Photo (NurPhoto via Getty Images)
Fourth-quarter revenue was $9.7 billion, below the $10.12 billion average Bloomberg estimate and down 6% from $10.36 billion a year earlier.
The company reported an adjusted loss per share of $4.07 due to impairment charges, down from a loss of $0.51 in the year-ago period and below the consensus estimate of a loss of $0.21.
Free cash flow, a bright spot in the first quarter, bucked that trend: The metric fell 43% from a year ago to $976 million and below the Bloomberg consensus estimate of $1.2 billion.
The company’s direct-to-consumer streaming business was a bright spot during the quarter, as the release of Season 2 of “House of the Dragon” helped Max add 3.6 million subscribers, beating Bloomberg’s consensus estimate of 1.89 million and beating the 1.8 million subscribers added in the second quarter of 2023.
Streaming ad revenue surged to $240 million, beating Bloomberg’s estimate of $191 million and up 98% from the $121 million the company reported in the same period last year. But its DTC division posted a loss of $107 million after reporting a profit in the first quarter.
Future uncertain amid struggles for Linear Shinkansen
The NBA rejected WBD in its latest media rights negotiations, instead turning to two new partners: tech giant Amazon (AMZN) and Comcast-owned NBCUniversal (CMCSA). The NBA was able to reach a new rights deal with its other current media partner, Disney (DIS). WBD’s current rights expire at the end of next season.
Analysts have warned that the loss of these rights could impact the future success of the company’s streaming service Max and likely hasten the demise of its already-plunging linear networks.
Network advertising revenues in the second quarter were down 10% from the same period a year ago. The company reported network advertising revenues of $2.21 billion, below Bloomberg’s forecast of $2.26 billion.
That will weigh on second-quarter EBITDA and put full-year adjusted EBITDA at risk below $10 billion, according to the latest Bloomberg estimates — $4 billion lower than analysts expected at the time of the merger.
The stage during the first debate of 2024 between U.S. President Joe Biden and former U.S. President and Republican presidential nominee Donald Trump in Atlanta, Georgia, June 26, 2024. John Nowak/CNN/Distribution via REUTERS/File Photo (REUTERS/Reuters)
Rumors have been circulating about the company’s next move, with Bank of America analysts in a recent report laying out a possible strategic option of separating the company’s digital streaming and studio businesses from its traditional linear TV division.
Management did not mention the stock split during the earnings briefing, but did acknowledge that it had been discussed.
“We’re a publicly traded company, and we’re very conscious of our responsibility to assess what strategic options are available to us,” Weidenfels said. “We’re very focused on evaluating everything, not just running the business.”
Still, the company said it has “been executing on our Warner Bros. Discovery strategy for the past two and a half years and is seeing the benefits every day.”
Alexandra Canal is a senior reporter at Yahoo Finance. Follow her at Yahoo Finance. Translatorvisit me on LinkedIn or email me at alexandra.canal@yahoofinance.com.
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