Warner Bros Discovery tumbles on earnings warning

New York/Bengaluru — Box office smash Barbie helped Warner Bros Discovery top core quarterly profit estimates but the effects of two Hollywood strikes and a weak advertising market could hamper earnings into next year, company executives said on Wednesday.

The dour outlook sent the company’s shares tumbling more than 15%, on track for their worst one-day performance since August 2022.

Though Hollywood’s film and television writers ratified a new three-year contract in September, ending their 148-day work stoppage, members of the SAG-AFTRA actors union have been on strike since July, roiling the industry’s 2024 film slate and depriving media companies of new content to sell.

CFO Gunnar Wiedenfels said on a call with investors that there is a risk the financial hit from the strike will linger into 2024.

“It is becoming increasingly clear now that much like 2023, 2024 will have its share of complexity, particularly as it relates to the possibility of continued sluggish advertising trends,” Wiedenfels said. “We don’t see when this is going to turn.”

CEO David Zaslav said the company experienced its lightest original content slate in years and had to delay some releases, leading to a drop in third-quarter streaming subscriber numbers.

Wiedenfels said that for full-year 2023 there is likely to be “a few hundred million dollar” of a negative impact on earnings before interest, taxation, depreciation and amortisation (ebitda) due to strike impacts, and “several hundred million dollar” of positive cash flow due to being unable to spend on production.

Above estimates

“The extreme success of the Barbie movie may be a one-off for them that won’t be repeated for at least a few years,” said Michael Schulman, chief investment officer at Running Point Capital.

The media company, forged by the union of WarnerMedia and Discovery, posted third-quarter adjusted core earnings of $2.97bn, above estimates of $2.92bn, according to LSEG data. Overall revenue of $9.98bn was in line with estimates.

The company reported free cash flow of $2.06bn, compared with $1.72bn in the prior quarter. This surpassed expectations for $1.74bn, according to Visible Alpha.

The company posted a net loss of $417m, narrowing from a $2.3bn net loss from a year-ago period.

“The market is not thrilled with the fact that even with the unparalleled blockbuster success of Barbie, they still found a way to lose $417m in the quarter. Not ideal,” Great Hill Capital chair Thomas Hayes said.

Advertising revenue at its networks segment declined 12% to $1.71bn as global conflicts and inflation created an uncertain climate for marketers.

The company’s streaming unit posted an adjusted core profit of $111m, compared with a loss of $634m a year ago. Global average revenue per user in the segment rose 6%.

Warner Bros Discovery had 95.1-million global direct-to-consumer customers at the end of the quarter, down from 95.8-million in the previous quarter. In May, it launched its Max streaming service, combining HBO Max’s scripted entertainment with Discovery’s reality shows.

The company lost 17c per share, larger than estimates for a loss of 6c.

Reuters