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Warner Bros. Discovery Shares Slide 12% After Earnings Debut

After the firm released its first combined financial results, which included a significant net loss, lackluster sales, high debt, and slower streaming growth, shares of Warner Bros. Discovery dropped precipitously in late trading.

Wall Street apparently wasn’t reassured by a lengthy conference call with the CEO David Zaslav, CFO Gunnar Wiedenfels, and worldwide streaming head JB Perrette that included presentations, slides, and Q&A. The new team is currently engaged in a significant reorganization and reevaluation of the business models related to streaming, theatrical distribution, and costs. It will combine HBO Max and Discovery, and it might later launch a service supported by free advertisements.

Streaming losses ($518 million deal, $560 million combined pro forma) are anticipated to peak this year, and by 2025, when the combined company anticipates having 130 million customers, the business will have generated $1 billion in positive EBIDTA.

Gross debt was $53 billion, which Wiedenfels acknowledged was significant but mainly long-term. The business is currently working to minimize costs by at least $3 billion and to spend money wisely. It fired Demimonde and Batgirl from J.J. Abrams and is rumored to be preparing for significant layoffs to begin this month. Executives made no mention of impending layoffs, and Wall Street analysts asked no questions about them.

The CFO referred to 2022 as a transition year and began his remarks by saying that the team has had to modify expectations for this year and next due to a more challenging economic backdrop and a complete analysis of the combined data.

The newly formed Warner Bros. Discovery reported $9.8 billion in sales in its historic maiden earnings report following the official union of Warner Media and Discovery. If the company had merged for the entire three months, the value would have been $10.8 billion. (The deal was finalized on April 8.) That was less than the $11.8 billion consensus estimate on Wall Street and was down 3% from the prior year.

A $3.4 billion net loss (or $2.2 billion pro forma) was made up of $983 million in transaction and integration costs, $2 billion in intangible asset amortization, and $1 billion in restructuring and other charges.

With the merged business just now beginning to take shape publicly, the deal represents a significant change in the media environment. In a webcast that starts at 4:30 ET and could last for several hours, CEO David Zaslav, CFO Gunnar Wiedenfels, and global streaming chief JB Perrette will outline the business and strategic goals and answer questions from Wall Street. They may discuss integrating HBO Max and Discovery+, film (including why WBD recently shelved Batgirl in the final stages of post-production), upcoming layoffs to eliminate redundancies amid $3 in planned cost savings, and more. Quite a bit of ground. WBD got off to a quick start today by announcing the move of Magnolia Network to HBO Max and a new CNN Originals streaming hub on Discovery+.

Here are some noteworthy financial facts:

$9.8 billion in total reported revenues for Q2. Comparing the current quarter to the same period last year, pro forma combined revenues declined by 1% (excluding foreign exchange).

A $3.4 billion net loss is made up of $983 million in transaction and integration costs, $2 billion in intangible asset amortization, and $1 billion in restructuring and other charges.

EBITDA after adjustments was $1.664 billion.

Related

-Reported free cash flow increased to $789 million and cash supplied by operational activities to $1 billion.

-Ended the second quarter with $53 billion in gross debt and $3.9 billion in cash on hand.

-Adjusted for the business’s new DTC subscriber definition, the company ended Q2 with 92.1 million global DTC subscribers, an increase of 1.7 million from the 90.4 million subscribers at the end of Q1. The 10 million legacy Discovery non-core subscribers and the inactive AT&T mobility users were excluded from the Q1 subscriber total according to the new definition.

Since establishing Warner Bros. Discovery, “we’ve had a busy, productive four months,” said CEO David Zaslav. “We have greater confidence than ever in the huge possibilities ahead.”

We intend to maximize the value of that content through a wide distribution model that includes theatrical, streaming, linear cable, free-to-air, gaming, consumer products, and experiences, and more, everywhere in the world. “We have the most powerful creative engine and a bouquet of owned content in the world, as highlighted by our industry-leading 193 Emmy nominations. We are quite optimistic about the company’s future and are certain that we are on the right track to achieve our strategic objectives and genuinely flourish in both the creative and financial realms.

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