Shares of Warner Bros. Discovery (WBD) rose to an all-time high in early trading on Thursday after the company reported disappointing second-quarter results on Wednesday, with both revenue and bottom line numbers falling short of expectations. It fell 12%.
The company recorded a large $9.1 billion impairment charge related to its television networks division following the loss of a key media rights contract with the NBA. The company filed a lawsuit against the league, alleging that the NBA “unreasonably rejected” the company’s matching rights proposal.
The company took an $11.2 billion hit in writedowns and charges last quarter, including $2.1 billion in additional costs related to the merger. Additionally, the company reversed previous revenue trends in its streaming business even as it added nearly 4 million subscribers in the quarter, despite continued deterioration in its linear TV division.
Wall Street analysts weighed in on the report Thursday, with at least one suggesting it was “unlikely” things could get any worse for the media giant.
KeyBanc analyst Brandon Nispel, who rates the stock “overweight,” says the company’s studio business will likely perform better in 2025 than it did in 2024, while streaming will accelerate. It said it could continue to offset the decline in linear networks.
Warner Bros. Discovery CEO David Zaslav said on an earnings call that the streaming division’s revenue was boosted by “further subscriber growth” this quarter and the division’s EBITDA of “at least” $1 billion. He argued that sales will be positive in the second half of the year. In 2025.
Still, Zaslav pointed to changing industry trends as a key catalyst for impairment charges, telling investors on a conference call, “Even two years ago, market valuations and general conditions for legacy media companies were It’s fair to say it was very different than it is today.”This impairment recognizes this and better aligns our company’s values with its future outlook. ”
WBD CFO Gunnar Wiedenfels said the second quarter would be affected by “the difference between current market capitalization and the company’s book value, continued weakness in the U.S. advertising market, and uncertainties related to affiliate and sports rights renewals.” There were many triggering events, including sex,” he added. Including the NBA. ”
“I certainly don’t deny the magnitude of this impairment, but the flip side of this is the change in value across our business model and our exposure to growth and value opportunities across the studio and our company globally. “We think it’s equally important to recognize that it reflects a belief and confidence that translates directly to consumer business,” he said.
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Warner Bros. Discovery has struggled in recent quarters, with a weak linear advertising environment and pressure on affiliate commissions hurting profits REUTERS/Eric Gaillard/File Photo (NurPhoto via Getty Images)
Revenue for the quarter was $9.7 billion, below the Bloomberg consensus estimate of $10.12 billion and down 6% from $10.36 billion a year ago.
The company reported an adjusted loss of $4.07 per share, compared with a loss of $0.51 in the year-ago period, which was below the consensus estimate of a loss of $0.21 due to impairment charges.
Free cash flow, which was a bright spot in the first quarter, bucked that trend this time around. The measure fell 43% year over year to $976 million, missing the Bloomberg consensus estimate of $1.2 billion.
The company’s direct-to-consumer (DTC) streaming business was a bright spot in the quarter. During the release of “House of the Dragon” Season 2, peak subscriber numbers increased by 3.6 million. This beat the Bloomberg consensus estimate of 1.89 million subscribers, as well as the 1.8 million subscribers added in the second quarter of 2023.
Streaming ad revenue jumped to $240 million, beating Bloomberg’s $191 million estimate and up 98% from the $121 million the company reported in the year-ago period. However, the DTC division posted a loss of $107 million after reporting a profit in the first quarter.
Future uncertain amid track war
In the latest round of media rights negotiations, the NBA ceded WBD in favor of two new entrants: tech giant Amazon (AMZN) and Comcast-owned NBCUniversal (CMCSA). The league was able to reach a new rights agreement with current media partner Disney (DIS). WBD’s current rights expire at the end of next season.
Analysts warn that the loss of these rights will likely impact the future success of streaming service Max and hasten the demise of the linear network, which is already in free fall.
Network advertising revenue in the second quarter was down 10% compared to the same period last year. The company reported network ad revenue of $2.21 billion, which fell short of Bloomberg’s forecast of $2.26 billion.
This weighed on second-quarter EBITDA, with full-year adjusted EBITDA now at risk of falling below $10 billion, according to the latest Bloomberg estimates. This was $4 billion lower than analysts expected at the time of the merger.
The photo in this handout is from the first debate of 2024 between U.S. President Joe Biden and former U.S. president and Republican presidential candidate Donald Trump, held in Atlanta, Georgia, U.S. on June 26, 2024. Stage setting. Handout/File photo via John Nowak/CNN/Reuters (Reuters/Reuters)
Rumors have been flying about the company’s next move, with Bank of America analysts saying in a recent report that it could include separating the company’s digital streaming and studio businesses from its traditional linear TV division. It presents certain strategic options.
Management avoided the topic of a split at the company’s financial results conference, but appeared to acknowledge that it was being discussed.
“This is a publicly traded company. We are very aware that we have a responsibility to have a view on any strategic options that are out there,” Wiedenfels said. “We’re obviously very focused on evaluating everything, not just running our operational business.”
Still, the company said, “For the past two and a half years, we have been operating on a One Warner Bros. Discovery strategy, and we are seeing the benefits every day.”
Alexandra Canal is a senior reporter at Yahoo Finance. Follow her on X @allie_canalVisit LinkedIn and email alexandra.canal@yahoofinance.com.
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