- The continued sell-off of Discovery has created an inexpensive entry point. I'm updating my rating to "Very Bullish" for the Series C shares.
- Both Discovery and HBO Max have seen steady, though not breathtaking, progress on their D2C subscriber numbers. The core legacy cable business continues to be highly cash generative.
- The single share class makes Warner Bros. Discovery a potential acquisition target. This should put a floor under the price in the medium term and reinforces the asymmetric upside/downside trade-off.
- NewCo's pro forma multiples are roughly ~2.9x EV/Sales and ~9.5x EV/EBITDA. Its run-rate annual D2C revenues are about $9.5B, roughly Netflix's level in early 2017.
- Concerns about dividend-oriented investors dumping NewCo after the deal close could continue to weigh on the stock price.
For further details see:
Discovery And Warner Bros.: Upgrading Based On Value, D2C Growth Opportunity