Warner Bros. Discovery, Inc. (NASDAQ: $WBD) is a global mass media and entertainment conglomerate based in New York City that operates in television, films, publishing, and cable networks.
On Thursday, May 9, 2024, Warner Bros. Discovery released its Q1 results for fiscal 2024 to a negative market reaction.
Warner Bros. Discovery’s Mixed Q1 Results
For the first quarter, Warner Bros. Discovery’s reported a revenue decline of 7% Y/Y to $9.96 billion, below estimates of $10.25 billion.
The movie and television behemoth also reported a massive net loss of $966 million, almost double the $501.7 million analysts had forecast. However, it was a decline from the $1.07 billion loss reported the previous year.
The company reported a $0.40 net loss per share, slightly lower than the $0.44 per share loss reported the previous year but nearly double the $0.21 forecast by analysts.
The company reported an adjusted EBITDA of $2.102 billion, a 20% ex-FX decline Y/Y, driven by the lower revenue from their latest game “Suicide Squad: Kill the Justice League,” compared to the success of “Hogwarts Legacy” the previous year.
The company reported $585 million in cash from operations, compared to a negative $631 million the previous year. Free cash flow increased to $390 million this quarter compared to a negative $930 million the previous year.
Warner Bros. Discovery ended the quarter with $3.4 billion in cash on hand, and $43.2 billion in gross debt after repaying $1.1 billion of its debt in the quarter. It also revealed plans for a $1.75 billion cash tender to further cut down its debt.
Segment Performance
The Studio segment saw a 13% decline in revenue on an ex-FX basis to $2.821 billion while operating expenses inched up 1% on an ex-FX basis to $2.637 billion.
Its Network segment, which includes properties like CNN, HGTV, and Discovery, experienced an 8% ex-FX decline in revenue to $5.125 billion, driven by a 3% ex-FX decline in distribution revenue, and the impact of the AT&T SportsNet exit.
The Corporate segment saw adjusted EBITDA increase 2% ex-FX to a negative of $346 million.
Streaming Segment Experiences User Growth
The company’s Director-To-Consumer segment was the start of the quarter, with total subscribers rising to 99.6 million, driven by a 2 million increase in global subscribers sequentially. The ARPU increases 4% ex-FX from the previous year to $7.83.
Revenue for the DTC segment increased to $2.460 billion compared to $2.455 billion the previous year, driven by a 70% ex-FX increase in ad revenue.
Expenses increased 1% ex-FX to $2.374 billion Y/Y, while adjusted EBITDA increased 59% ex-FX to $86 million.
Warner Bros. Discovery Provides Updates on NBA Rights
On Tuesday, April 30, WBD stock sank to a new 52-week low of $7.34 after an exclusive WSJ report revealed that its Television segment could lose its NBA broadcasting rights. For decades, its property TNT has been the broadcaster for select playoff and regular season NBA games.
Commenting on the recent report, CEO David Zaslav stated, “We’ve enjoyed a strong partnership with the NBA for almost four decades. We’re in continuing conversations with them now, and we’re hopeful that we’ll be able to reach an agreement that makes sense for both sides.”
If the company loses the broadcasting rights to rival NBCUniversal (CMCSA), it could destroy its Network segment. According to the WSJ report, NBCUniversal has offered $23.5 billion a year for the broadcasting rights, nearly double what WBD pays.
WBD Stock Performance
Following the Q1 results, Warner Bros. Discovery shares inched up by 1.60% at one point before nosediving 0.45% to $7.76 as of of 11:18 AM EDT on Thursday, driven by the improved balance sheet and streaming service numbers.
The stock has performed dismally in the recent past. Since the start of 2024, WBD shares have lost over 30% of their value, declining from over $11 to under $8. The stock has suffered over the past 52 weeks, losing 41.05% of its value, compared to the 25.59% gain of the SPX.
The stock recently plummeted to a new all-time low after it emerged that it could lose its NBA broadcasting rights to competitor NBCUniversal. It is currently trading at a 46.27% discount to its 52-week high of $14.76 and just above its 52-week low of $7.34.
It is trading below its 50 DMA and 200 DMA of $8.40 and $10.46 respectively.
Analysts’ Outlook on WBD Stock
Analysts remain cautiously optimistic regarding the future of WBD. They forecast a wide range for the stock, with a high of $20 and a low of $9. Their average price forecast of $13.61 is a 71.63% upside based on the most recent price.
Should You Add Warner Bros. Discovery to Your Portfolio?
Warner Bros. Discovery’s financial statement signals the company is on the rebound. Its financial position is the best it has been in the past few years. Free cash flow in the first quarter improved by a massive $1.3 billion from the previous year, with $3.4 billion in cash on hand.
Additionally, it has some of the most valuable properties in the entertainment industry, which include HBO, Warner Bros Studios, and Turner Networks. The current performance is due to the CEO’s focus on cutting costs, reducing debt, and improving efficiency. On a long-term basis, that could lead to stellar growth.
Consequently, the moderate buy rating for WBD accurately represents the stock’s future. For investors with a long-term investment horizon, WBD could be an attractive option.
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