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What’s the key to investing in the content space? Today, we tell you. Ecosystems Matter One of the investing themes we love here at The Juice focuses on ecosystems. As we continue to develop it, let’s briefly consider a type of ecosystem that differs from the Apple or Starbucks’ models we’ve recently discussed. The Content Ecosystem The ability to deliver diverse content seamlessly across platforms, devices, and demographics. As in, I started watching a show on my tablet during the day and finished watching it, right where I left off, on my smart TV at night. As in, I finished one show and, the platform’s robust data, tells me I’m probably going to want to watch this show next. As in, household member #1 is watching live golf in the garage. Household member #2 is watching a DC movie in the living room. Household #3 has Friends on in the background while reading a book in the office. A content ecosystem that consistently delivers consumers and advertisers. Going forward, we’ll continue to flesh out the ecosystem theme(s), starting today with potentially one of the biggest bargains on Wall Street. |
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Big Company, Even Bigger Bargain For Investors |
Key Takeaways:
The Case For Warner Starts With Netflix To make the most clear case for Warner Bros Discovery (WBD), start by refuting the #1 thing investors love to do when a company suffers hard times. Netflix is hurting. It needs a lifeline. Warner Bros should buy it! Ask yourself, why would Warner buy Netflix? What’s the point? Why would a company with 3.5 billion subscribers and viewers worldwide and a massive stable of diverse content – including many legacy franchises – buy a company with 222 million and plummeting streaming-only subscribers and an inferior, if not fledgling content lineup? It wouldn’t be a buyout. It’d be a bailout, for Netflix. As we discussed in Thursday’s Juice, Netflix is in trouble. Warner is not. The Most Important Word In Content On its first earnings call as Warner Bros Discovery this week, Warner executives used the word “balanced” eight times. It’s keyword to keep top of mind when considering stocks in the space. Our balanced verticals and content genres across scripted, lifestyle, sports and news provide us with significant opportunities to not only cross-promote for the benefit of the portfolio, but also to offer compelling reach and targeting campaigns for our advertising partners. An Example Of Warner’s Edge Consider something else WBD CEO David Zaslav said on that earnings call: … our research shows that people watch Euphoria, their favorite second show to watch is 90 Day Fiance. So having a diversity of content is a reason why people are spending hours with Discovery+ … but the same people that are watching Julia, … or watching Gilded Age, they’re turning around and they’re watching Big Bang Theory and … Friends. That’s why HBO Max has been able to continue to grow so aggressively. Zaslav is referring to the HBO hit Euphoria and Discovery’s huge 90-Day Fiance franchise as well as HBO’s Julia and Gilded Age. While Netflix has received tons of credit for its recommendation algorithm (much of it deserved), you need a strong and consistent content pipeline to make it valuable. To create a sticky platform with effective cross-promotion capabilities from two standpoints. For The Consumer Warner plans to merge its HBO Max and Discovery+ apps. They’ll do this to maximize the synergies in their content portfolio. Prior to the merger, Discovery had already combined its brands (e.g., Food Network, HGTV, TLC, Discovery Channel) into one app – Discovery+. Why force a viewer who routinely watches Food Network and HGTV to switch between apps when you can keep them engaged in one? With the addition of Warner Media content, namely HBO, this ability to superserve multiple audiences, via one app, becomes even more powerful. It comes down to having the content stable to best support this strategy. WBD has it – in the aforementioned content, not to mention news, sports, classic and new feature films, and legacy programming such as Friends and Big Bang Theory. Another big key – Warner owns all of this content. It’s not paying zillions for a classic sitcom the way Netflix does for, say, Seinfeld. For The Advertiser Within this context, imagine Warner’s sales pitch. It can go to big advertisers with the data that a large aggregation of viewers in specific demographics watch Euphoria first, then 90-Day Fiance and sell them on this. It can do likewise with its slate of live sports, showing ad buyers, for example, the shows people who love the NBA on TNT watch. And so on. Netflix cannot do this. It simply doesn’t have the content – in terms of quantity or diversity. It’s like HBO used to be – a standalone content creator always in search of the next big hit to stay relevant. The Bottom Line: WBD CFO Gunnar Wiedenfels said it best on the earnings call: “The balanced portfolio has so many built-in financial hedges.” Hedges meaning Warner has significant footholds in the spaces where we consume content: traditional linear TV, streaming, and the movie theater. When there’s pressure in one area, Warner can fall back on another. It can also hang onto and continue to engage consumers as they cut the cord. This content model – which is a mix of old school delivery and the streaming Netflix pioneered – is where you want to put your money as an investor. You don’t want a pure play streamer without the hedges Wiedenfels speaks of. The new WBD stock trades for ~$18.35/share with a P/E ratio of just over 12. For long-term investors, Warner Bros Discovery might just be your most interesting and comprehensive entry into the content space. |
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