WBD - Warner Bros. Discovery: Still Nothing To Be Excited About

2024-05-30 14:40:56 ET

Summary

• Warner Bros. Discovery's Q1 results show a 6.9% YoY decline in consolidated revenue and a 20% YoY decline in EBITDA, missing consensus estimates.
• The Linear Networks segment sees a decline in advertising revenue, and the Studio segment struggles with underperforming major releases.
• Although the Direct-to-Consumer segment sees some growth, competition in the streaming market poses a challenge for future growth and WBD's "rejuvenation"
• Further compounding these issues are the ongoing negotiations for NBA broadcasting rights, with the potential loss of these rights posing a significant risk to future revenues.
• I maintain an "Underweight/Sell" rating with a $6.9/share target price.

Heading into 2024, I pointed out that Warner Bros. Discovery (WBD) is entering the new year facing notable challenges, highlighting both financial and commercial headwinds. On that note, I argue that WBD's Q1 results confirmed my bearish thesis: During the quarter, the company’s consolidated revenue dropped 6.9% YoY, while EBITDA declined almost 20% YoY. Both topline and profitability missed against consensus estimates. By segment, Warner Bros. Discovery's Linear Networks division continued to suffer a notable topline decline due to decreasing advertising revenue, mirroring the broader industry shift away from traditional television. Meanwhile, the Studio segment struggled with underperforming major releases (especially in the Gaming business). And although the Direct-to-Consumer segment saw slight growth, the fierce competition in the streaming market will likely put a lid on upside in the foreseeable future. Further compounding these issues are the ongoing negotiations for NBA broadcasting rights, with the potential loss of these rights posing a significant risk to future revenues. I remain "Underweight/ Sell" rated....

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