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The Ratings Game: Warner Bros. Discovery’s ‘tough juggling act’ sends stock to 13-year low


Shares of Warner Bros. Discovery Inc. were plunging Friday toward closing levels not seen since May 2009 as the media giant’s latest earnings report highlighted challenges prevalent across the industry — as well as some unique to the newly combined company.

The stock was off 14.5% in Friday afternoon trading and on pace to be the worst performer in the S&P 500

on the day. Shares were headed toward their lowest close since May 15, 2009, when they finished at $9.85, according to Dow Jones Market Data. WBD

shares have declined 57% so far this year.

Read: Warner Bros. Discovery to speed up merger of HBO Max, Discovery+

The company is in the midst of a “tough juggling act,” MoffettNathanson analyst Robert Fishman said, as it looks to bring together two businesses, reduce its leverage, shake up its streaming offerings, balance licensing decisions and stem the pressures of cord cutting, among other issues.

“So, will WBD be able to pull it off?” Fishman asked. “The reality is that we don’t fully know yet and the company essentially admitted as much as well. Just three months ago, WBD provided updated 2023 Ebitda [earnings before interest, taxes, depreciation, and amortization] guidance of $12+ billion vs. $14 billion previously. Last night, management flagged the ‘lack of visibility on advertising globally’ as the biggest swing factor in hitting its target and noted that Pay TV trends are out of their control.”

Pain in the legacy business could affect progress elsewhere, he continued: “WBD’s deep dependence on profits from linear cable networks could offset any [direct-to-consumer] improvement after expected peak losses in 2022.”

He reiterated a market-perform rating and $15 price target on the stock.

Opinion: As subscription prices rise, here’s what’s worth streaming in November 2022: ‘The Crown,’ ‘Willow,’ ‘Mythic Quest’ and more

Wells Fargo’s Steven Cahall highlighted the storm of issues as well.

“Macro challenges are hitting WBD amid a big restructuring and that’s fueling uncertainty,” he wrote in a note to clients.

Though the company exceeded expectations with its third-quarter Ebitda performance, he said he expected that estimates on the metric would come down, while at the same time noting that WBD faces “a lot of revenue uncertainty” as it closes out the year and moves into 2023.

“There’s probably more scope for earnings upside at WBD due to [merger] synergies, but with gross leverage at 5.4x there’s also limited tolerance for the company to miss the ’23 guidance, and the macro makes everything feel shakier,” he wrote. “It’s also likely not until [the second half of] 2023 that the DTC proof points come through.”

He rated the stock at equal weight and cut his price target to $13 from $16.

Cowen & Co.’s. Doug Creutz viewed the results more positively in a note to clients titled “Turnaround is Progressing.”

In his view, the company’s beat on profits illustrated that “operational improvement” is “well underway.”

He acknowledged that the company’s commentary on the $12 billion 2023 Ebitda goal struck a more “cautious” tone, but he continued to recommend the stock as he reiterated an outperform rating.

“While management has not abandoned the $12 billion target, clearly it is less of a floor than we had hoped,” he wrote. “Despite this disappointment, we still view shares as very cheap given the underlying asset value and the operational turnaround.”

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