Warner Bros. Discovery (WBD) continued to plummet Thursday, falling 16% in afternoon trading after the company reported a $3.42 billion loss in the second quarter, partly due to hurdles related to the recent merger.
“We knew it was going to be messy, but this was pretty horrendous,” Geetha Ranganathan, senior media analyst at Bloomberg Intelligence, told Yahoo Finance.
The company expects adjusted EBITDA for 2022 to be between $9 billion and $9.5 billion, down from previous forecasts of $10 billion. Management also lowered its full-year 2023 EBITDA forecast from $14 billion to $12 billion.
“This raises the question of what the growth path is for this company, as there is no impending catalyst,” Ranganathan said, explaining that its streaming business is largely dependent on future execution, while most of the company’s revenues remain connected. to its old TV business – a risk if consumers cut the cord.
“The end of 2022 and into 2023 — it’s looking pretty bleak,” she continued.
Analysts remain divided on what the future might hold for the streaming giant.
CFRA maintained its Hold rating on the stock. The company also lowered its price target by $7 to $16 a share.
“We think WBD is lagging behind in a tough competitive TV market faced by larger streaming providers,” analyst Ken Leon wrote in a new note.
Cowen analyst Doug Creutz, meanwhile, reiterated his Outperform rating and set a price target of $24 per share. The analyst praised the conglomerate’s cost-cutting goals, writing that “the business will be managed for free cash flow primarily, and we think this is a message that will resonate.”
Warner Bros. Discovery previously said it expects $3 billion in costs over the next two years.
As a result, job losses are largely expected, with Ranganathan suspecting that “layoffs will be inevitable” as the company maintains a “laser focus when it comes to gaining synergies”.
HBO Max, Discovery+ merger ‘logical’
During the company’s earnings call, Zaslav gave some more clarity about the future of HBO Max. He confirmed that the streaming service will be combined with Discovery+ as a single platform, launching next summer.
Ranganathan said the move “makes sense” given its portfolio of assets with Discovery leaning toward more global and non-fiction, while HBO Max is tarnished by more expensive, higher-quality script programming.
She added that the decision also makes sense from a financial point of view, given the double management costs.
Combining the two entities “makes the product all the more robust – an indispensable service, which is exactly what their approach will be,” the analyst predicted.
In the meantime, the two services will share content. The company provided an update on programming ahead of the announcement, revealing that select content from Chip and Joanna Gaines’ Magnolia Network will be arriving on HBO Max in September. It will also remain available on Discovery+.
In addition, TAUT will have its own hub on Discovery+ with original series such as “Stanley Tucci: Searching for Italy” and “Anthony Bourdain: Parts Unknown”.
Profitability has quickly become a top priority for investors, with streaming and production costs continuing to rise.
Amid its cost-cutting agenda, Warner Bros. Discovery that the company is considering a free, ad-supported streaming plan to attract budget-conscious consumers and reduce churn.
HBO Max and Discovery+ already have their own respective ad tiers, making the rollout a fairly seamless process; However, Ranganathan warned that the benefits of an ad-supported tier, similar to the company’s streaming efforts as a whole, all “come down to execution.”
The company expects 130 million streaming subscribers worldwide by 2025. It ended the second quarter with 92.1 million subscribers, about 1.7 million more than in the first quarter. For context, Netflix has just over 220 million global subscribers to date.
It will come to the execution…Geetha Ranganathan, senior media analyst Bloomberg Intelligence
Warner Bros. Discovery estimated that EBITDA for global streaming will reach $1 billion by 2025, with the streaming business even breaking through by 2024. It expects a peak EBITDA loss in streaming by this year.
“There will be volatility, but in the long run their targets seem very reasonable,” the analyst claimed, explaining that the media conglomerate’s $1 billion EBITDA target feels conservative, alongside the 20% margin target for streaming.
Overall, Ranganathan emphasized that the company won’t have the most successful streaming platform on the market, but in the end it might not matter.
“I don’t think they will become the number one streaming service,” she predicted.
“But that’s okay — as long as they can make money.”
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