WBD - Warner Bros. Discovery: An Undervalued Media Giant That Could Dominate Streaming

2024-04-25 07:51:39 ET

Summary

• Max is likely to be in the top 3 streaming services globally. A significant opportunity with an estimated total addressable market of more than 800 million households.
• Value investors including Seth Klarman have purchased big stakes in recent years. Michael Burry bought a stake as recent as Q4 2023.
• Even though unpopular, current leadership is executing well and has significant skin in the game.
• Advertising spending is forecasted to be significantly stronger in 2024 on the back of the presidential elections and the Olympics.
• Warner Bros. Discovery’s current valuation is very attractive. Even without top-line growth, Warner Bros. Discovery could return 20-25% annually just by paying down debt.

Investment Thesis

After falling 65% since April 2022, Warner Bros. Discovery's ( WBD ) valuation is at an all-time low. A forward FCF yield of ~25% and the huge potential of its streaming service Max provide us with a compelling entry point.

Short introduction

In April 2022 Discovery merged with WarnerMedia to create a new media giant: Warner Bros. Discovery.

AT&T Inc. ( T ) spun off WarnerMedia and then merged it with Discovery in what is called a Reverse Morris Trust. Upon completion, holders of AT&T common stock owned approximately 71% of the outstanding shares of Warner Bros. Discovery....

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