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Warner Bros. Discovery Falls 28% YTD: How Should You Play the Stock?
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Warner Bros. Discovery (WBD - Free Report) shares have dipped 27.6% year to date, underperforming the broader Zacks Consumer Discretionary sector’s return of 1.8%.
WBD shares have also lagged the Zacks Broadcast Radio and Television industry’s growth of 23.5% and its peers Netflix (NFLX - Free Report) , Fox (FOXA - Free Report) and Roku (ROKU - Free Report) . Over the same time frame, shares of NFLX and FOXA have gained 44% and 35.6%, respectively, while shares of Roku fell 17%.
In the first half of 2024, WBD revenues fell 7.1% year over year to $19.6 billion due to persisting softness in the linear advertising market in the US, uncertainties related to sports and affiliate rights renewal and impairment between market capitalization and book value.
Warner Bros. Discovery is suffering from a decline in overall ad sales and distribution revenues due to a fall in audience in domestic general entertainment and news networks and soft linear advertising markets in the United States and, to a lesser extent, certain international markets, as well as exiting the AT&T SportsNet business.
Nonetheless, the rising availability of its content across linear and digital over-the-top platforms like Hulu and Sling TV is expected to improve traffic in the near term. The growing popularity of non-fictional content on Discovery+ is encouraging.
WBD aims to drive profitability by improving its subscriber-related trends, stronger engagement, personalized content delivery and expense discipline.
However, investors should question whether these would be enough to help WBD recover. Let’s analyze.
WBD Benefits From Expanding Partner Base
Warner Bros. Discovery is benefiting from an expanding partner base that includes the likes of the Esports World Cup Foundation, SF Studios and Stan Sport.
Recently, Warner Bros. Discovery announced a distribution agreement with Charter Communication (CHTR), the largest distributor of Pay-TV in the United States. This deal is expected to negate the loss of the NBA partnership.
Charter signed a deal with WBD to increase the overall fee that it pays to broadcast Warner Channels. In return, Charter customers will have access to WBD’s Max and Discovery+ streaming platforms for free. WBD’s agreement with Charter is a strategic move undertaken by the former to aid in reaching Charter’s 57 million customers.
WBD expects to reach its EBITDA target of more than $1 billion for fiscal year 2025 by increasing its customer base with the Charter Agreement, leading to subscriber revenue improvement, delivery of more personalized content and reduced expenses.
Warner Bros. Discovery has initiated steps to take its channel, Max, to a broader market (including the European launch), which will prove to be beneficial operationally and financially. Max is currently available in 65 international markets. It plans to launch Max in new markets over the next 18 to 24 months.
It is initiating significant restructuring reforms, including strategic content programming assessments and facility consolidation activities, to achieve cost-effectiveness. WBD expects these reforms to be completed by the end of fiscal year 2024.
WBD’s 2024 Estimates Trending Down
For 2024, the Zacks Consensus Estimate for revenues is pegged at $40.44 billion, indicating a year-over-year decline of 2.13%. The consensus mark for 2024 loss is pegged at -$4.17 per share, much wider than the loss of 22 cents over the past 30 days.
The Zacks Consensus Estimate for third-quarter 2024 earnings is currently pegged at 7 cents, up 75% over the past 30 days. The consensus mark for third-quarter 2024 revenues is pegged at $9.99 billion, indicating year-over-year growth of 0.14%.
WBD – To Buy, Hold or Sell?
WBD believes that the Charter deal will help in driving top-line growth, driven by an expanding customer base and subscriber revenues.
The company’s prospects benefit from strong direct-to-consumer business due to strong content. However, weak legacy business remains a headwind.
WBD shares are undervalued, as suggested by a Value Score of B.
WBD currently has a Zacks Rank #3 (Hold), which implies that investors may want to wait for a more favorable entry point.
Image: Bigstock
Warner Bros. Discovery Falls 28% YTD: How Should You Play the Stock?
Warner Bros. Discovery (WBD - Free Report) shares have dipped 27.6% year to date, underperforming the broader Zacks Consumer Discretionary sector’s return of 1.8%.
WBD shares have also lagged the Zacks Broadcast Radio and Television industry’s growth of 23.5% and its peers Netflix (NFLX - Free Report) , Fox (FOXA - Free Report) and Roku (ROKU - Free Report) . Over the same time frame, shares of NFLX and FOXA have gained 44% and 35.6%, respectively, while shares of Roku fell 17%.
In the first half of 2024, WBD revenues fell 7.1% year over year to $19.6 billion due to persisting softness in the linear advertising market in the US, uncertainties related to sports and affiliate rights renewal and impairment between market capitalization and book value.
Warner Bros. Discovery is suffering from a decline in overall ad sales and distribution revenues due to a fall in audience in domestic general entertainment and news networks and soft linear advertising markets in the United States and, to a lesser extent, certain international markets, as well as exiting the AT&T SportsNet business.
Warner Bros. Discovery, Inc. Price and Consensus
Warner Bros. Discovery, Inc. price-consensus-chart | Warner Bros. Discovery, Inc. Quote
Nonetheless, the rising availability of its content across linear and digital over-the-top platforms like Hulu and Sling TV is expected to improve traffic in the near term. The growing popularity of non-fictional content on Discovery+ is encouraging.
WBD aims to drive profitability by improving its subscriber-related trends, stronger engagement, personalized content delivery and expense discipline.
However, investors should question whether these would be enough to help WBD recover. Let’s analyze.
WBD Benefits From Expanding Partner Base
Warner Bros. Discovery is benefiting from an expanding partner base that includes the likes of the Esports World Cup Foundation, SF Studios and Stan Sport.
Recently, Warner Bros. Discovery announced a distribution agreement with Charter Communication (CHTR), the largest distributor of Pay-TV in the United States. This deal is expected to negate the loss of the NBA partnership.
Charter signed a deal with WBD to increase the overall fee that it pays to broadcast Warner Channels. In return, Charter customers will have access to WBD’s Max and Discovery+ streaming platforms for free. WBD’s agreement with Charter is a strategic move undertaken by the former to aid in reaching Charter’s 57 million customers.
WBD expects to reach its EBITDA target of more than $1 billion for fiscal year 2025 by increasing its customer base with the Charter Agreement, leading to subscriber revenue improvement, delivery of more personalized content and reduced expenses.
Warner Bros. Discovery has initiated steps to take its channel, Max, to a broader market (including the European launch), which will prove to be beneficial operationally and financially. Max is currently available in 65 international markets. It plans to launch Max in new markets over the next 18 to 24 months.
It is initiating significant restructuring reforms, including strategic content programming assessments and facility consolidation activities, to achieve cost-effectiveness. WBD expects these reforms to be completed by the end of fiscal year 2024.
WBD’s 2024 Estimates Trending Down
For 2024, the Zacks Consensus Estimate for revenues is pegged at $40.44 billion, indicating a year-over-year decline of 2.13%. The consensus mark for 2024 loss is pegged at -$4.17 per share, much wider than the loss of 22 cents over the past 30 days.
The Zacks Consensus Estimate for third-quarter 2024 earnings is currently pegged at 7 cents, up 75% over the past 30 days. The consensus mark for third-quarter 2024 revenues is pegged at $9.99 billion, indicating year-over-year growth of 0.14%.
WBD – To Buy, Hold or Sell?
WBD believes that the Charter deal will help in driving top-line growth, driven by an expanding customer base and subscriber revenues.
The company’s prospects benefit from strong direct-to-consumer business due to strong content. However, weak legacy business remains a headwind.
WBD shares are undervalued, as suggested by a Value Score of B.
WBD currently has a Zacks Rank #3 (Hold), which implies that investors may want to wait for a more favorable entry point.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.