Warner Bros. Discovery - Hidden Gem or Money Pit? - InvestingChannel

Warner Bros. Discovery – Hidden Gem or Money Pit?

Proprietary Data Insights

Financial Pros’ Top Streaming Content Stock Searches in the Last Month

#1‘Walt Disney Company417
#2‘Netflix Inc188
#3‘Comcast Corp.40
#4‘Warner Bros. Discovery40
#5‘Paramount Global32
#ad It’s time you learn about Alternative Investments!

Warner Bros. Discovery – Hidden Gem or Money Pit?

Disney’s (DIS) recent spat with Charter Communications (CHTR) proved we’ve reached a tipping point.

Content distributors (cable) are tired of losing money. 

They want better deals, or they’ll walk away from the business entirely.

That forced Disney to eat its own words.

But they aren’t the only ones on the chopping block.

Streaming services like Paramount Global (PARA) already struggle to turn a profit and, in some quarters, generate positive cash flow.

However, we wanted to focus on Warner Bros. Discovery (WBD).

The stock caught our attention as financial pros kept returning to it as a point of comparison whenever they looked at other stocks in the category, according to our Trackstar data.

Why did they keep returning to WBD?

We wanted to find out.

Warner Bros. Discovery’s Business

Born from the merger of WarnerMedia and Discovery, Inc. in April 2023, this New York City-based behemoth aims to rewrite the media landscape. 

They’re on a mission to provide the world’s most complete and differentiated content portfolio, whether TV, film, or streaming.

Operating in over 220 countries and catering to 50 different languages, WBD owns famous brands such as Legends of DC and the wizardry of Harry Potter to the culinary delights of the Food Network and the journalistic prowess of CNN.

The company breaks down into three main segments:

  • Studios (42% of total revenues) – This segment is the Hollywood dream factory, spewing out feature films, TV shows, and interactive games. They’re also big on streaming services and distribution via the home entertainment market.
  • Network (28% of total revenues) – Think domestic and international television markets. Essentially, this is the backbone supporting your nightly news binges and sports fanaticism.
  • DTC (30% of total revenues) – Standing for Direct-to-Consumer, this is where WBD pushes its premium pay-TV and streaming services like HBO Max and Discovery+.

The writers’ and actors’ strike is hitting WBD like every other content creator.

This is a nasty problem for WBD as they’re losing streaming subscribers while just breaking even with that business.


Source: WBD Investor Relations

Compare that to the traditional networks segment, the one under threat from cable distributors, which generated $2.2 billion in EBITDA last quarter.

All-around, WBD faces a challenging road ahead.



Source: Stock Analysis

WBD is particularly vulnerable to these problems because of its heavy debt load.

The company carries a massive $47.3 billion in debt, down from $52.7 billion. And management is committed to reducing that number, which costs them $2.2 billion in interest every year.

As it stands right now, with $4.3 billion in cash generated from operations plus a $1 billion annual CAPEX, and almost $4 billion in debt due over the next year, WBD won’t have any wiggle room for mistakes.



Source: Stock Analysis

At the moment, WBD doesn’t generate a P&L profit. However, they do kick off a lot of cash.

With a price-to-cash-flow ratio of 6.3x, it may seem like a steal.

However, at the current cash generation rate, it will take WBD nearly a decade to bring down its debt levels.



Source: Seeking Alpha

But can WBD grow its way out of its current problems?


It largely depends on their streaming services; how they would achieve that is anyone’s guess.

All its peers are projecting revenue growth of around 4%-10%. The 53% revenue growth listed above is likely incorrect. Our calculations put it between 5%-7% based on management’s guidance.



Source: Seeking Alpha

WBD maintains a healthy gross margin. However, the SG&A spend is a significant problem.

Management hasn’t indicated they plan to reduce headcount. However, they expect to achieve $3 billion in synergies by 2025, $1.5 billion from cost savings, and $1.5 billion from revenue enhancements.

Our Opinion 5/10

While WBD is a solid company, it faces too many challenges in the near future to be a worthwhile investment.

Yes, it’s trading at a cheap price. But it will probably stay that way for years.

At some point, it should rebound.

The question is whether you want to wait until that happens.

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