Warner Bros. Discovery (WBD) Q2 2023 Earnings

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Warner Bros. Discovery On Thursday, it reported second-quarter results that fell short of Wall Street expectations and revealed that subscribers were lower than in the previous quarter.

At the end of the period, global direct-to-consumer streaming subscribers were 95.8 million, according to StreetAccount, less than analysts’ expectations of 96.7 million and down nearly 2 million from the end of the first quarter.

The company launched its bundled Max streaming service during the second quarter, combining HBO content with unscripted hits from the Discovery networks.

Customers who ditched their Discovery+ subscriptions for Max are likely to blame for the drop in subscribers. Data provider Antenna estimated that Discovery+ cancellations were up nearly 68% compared to June 2022 due to the move to Max.

However, the company said it paid down $1.6 billion in debt during the quarter and announced a tender offer to pay up to $2.7 billion more.

This follows a tender offer from June that drove the stock. Warner Bros. and paying off a heavy debt load from Discovery’s 2022 merger has been in focus as the company looks to return to investment-grade status by the end of the year.

Warner Bros. Shares of Discovery rose nearly 3% on Thursday.

The company ended the second quarter with $47.8 billion in debt and $3.1 billion in cash.

“The team has worked really hard over the last 16 months to restructure this business for the future … a true story company where we can continue to invest our meaningful free cash flow to serve all of our different businesses,” CEO David Zaslav said on Thursday’s earnings call. “What we’re doing now, really accelerated and accelerated — is a key element of that turnaround.”

According to Refinitiv, the company reported for the quarter ended June 30 against analysts’ estimates:

  • Loss per share: 51 cents vs. 38 cents expected
  • Income: $10.36 billion vs. $10.44 billion expected

Warner Bros. Discovery reported a net loss of $1.24 billion, or 51 cents per share, a sharp improvement from a net loss of $3.42 billion, or $1.50 per share, a year earlier.

Revenue of $10.36 billion was actually up 5% year-over-year, but down 4% after adjusting for foreign currency effects and the merger that closed early last year.

Like its peers, Warner Bros. Discovery is also working to make its broadcasting business profitable.

The company’s direct-to-consumer segment turned a profit for the first time this year, but posted a $3 million loss for the second quarter. Company executives had warned of the pullback, citing costs associated with Max’s launch.

Executives Warner Bros. and Discovery had been planning to merge the two streamers for more than a year as part of the rationale behind the merger. Prices for subscribers have remained unchanged until now – $9.99 per month with ads and $15.99 per month without ads.

Segment results

Warner Bros. Discovery’s studios cut earnings, with total revenue for the segment falling 8% from last year to $2.58 billion. On a pro forma combined basis – taking into account the impact of the merger – the segment declined 23%.

CFO Gunnar Wiedenfels said Thursday that the company’s films underperformed at the box office during the second quarter. Last quarter, The Flash hit theaters, barely breaking $100 million at the domestic box office.

“It’s ironic to say that given how successful Barbie has been,” Wiedenfels said, noting that the impact of this latest blockbuster will be felt in the third quarter.

Meanwhile, the networks segment was flat at $5.76 billion as ad revenue for the segment declined due to declining traditional cable TV subscribers and a soft advertising market. On a pro forma consolidated basis, the segment declined 6%.

Due to the uncertain macroeconomic environment, the weak advertising market has affected Warner Bros. in recent quarters. The rate of cord cutting has also accelerated.

Zaslav called the prolonged slowdown in the advertising market “extraordinary” and noted that while there has been some progress, it is “not a big deal.”

“I think a lot of us expected a meaningful recovery in the second half of the year, and we didn’t see that,” Zaslav said on Thursday’s earnings call.

He noted that the company is almost done with its annual pitch to advertisers, known in the industry as the primary discussion. Zaslav said that the volume of advertising has increased and the price levels are the same as last year. Last year, Warner Bros. Discovery secured approximately $6 billion in advertiser commitments.

A big driver for the company has been the ad-supported tier on Max, which recently began including ads on HBO series in both new and library content. Executives noted that ad revenue for streaming grew 25% on a pro forma consolidated basis during the quarter.

Company executives previously said they were sticking to their goal of quadrupling the debt-to-EBITDA ratio. As CNBC previously reported , any meaningful generation of money will likely go toward paying off the debt.

Cost reduction initiatives, including layoffs and content cost reductions, as well as more content licensing, led to EBITDA and cash generation that increased almost 30% to $2.15 billion during the quarter.

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