Warner Bros Discovery matched Wall Street estimates for revenue in the first quarter, with $10.7 billion, but posted a wider-than-expected loss due to tough comparisons with the year-ago period.
Net losses in the quarter ending March 31 reached 44 cents a share, significantly worse than the consensus forecast by analysts for a 5-cent loss and a bit swing to the red from year-ago actual profit of 69 cents a share. (On a pro forma basis, the combined company, whose merger closed in April 2022, also posted a net loss in the year-ago quarter.)
Streaming proved a rare bright spot, posting $50 million in EBITDA after several quarters of losses. CEO David Zaslav pronounced it a “meaningful turn” in a positive direction and the company said it now expects the streaming operation to become profitable on a full-year basis in 2023, a year earlier than expected.
Streaming subscriptions, spanning primarily HBO Max and Discovery+, rose by 1.5 million to reach 97.6 million, beating forecasts. The company had previously said direct-to-consumer streaming would break even this year and then hit the black by 2024. Later this month, HBO Max and Discovery+ are combining in a revamped service called Max. In a departure from initial plans, execs said earlier this year that Discovery+ will remain available as a stand-alone option for consumers, so the blending of services is not an all-or-nothing proposition.
The direct-to-consumer division reported quarterly revenue of $2.455 billion, while operating expenses declined 24% to $2.4 billion.
Revenue in the Studios division slid 7% to $3.2 billion, with the company citing tough comparisons with the year-earlier quarter, when it released The Batman and made a number of lucrative TV licensing deals.
The Networks division saw a 10% drop in revenue on a pro forma basis, with advertising falling 14%. The company blamed the downturn in advertising on “audience declines in domestic general entertainment and news networks” as well as general softness in the ad market.
It has been a little more than a year since the close of the $43 billion merger of WarnerMedia and Discovery, with AT&T remaining a large stakeholder. The company has promised investors $4 billion in cost savings from the combination, up from an initial forecast of $3 billion. Zaslav said when the company reported results for the previous quarter that the “bulk of our restructuring is behind us,” adding, “we are one company now.”
The company is carrying significant debt, however, with net leverage at 5 times trailing earnings and total debt of $49.5 billion as of the end of the first quarter.
Spring earnings season has been a bumpy ride for media companies. Paramount Global suffered its worst single-day stock decline as a company — 28% — on Thursday after reporting soft results, though most of the hit came because the company slashed its dividend. Still, a challenging economic environment, the complexity of the transition to streaming and wariness by advertisers have combined to make it tough going in the media business.
Shares in WBD are below where they started out after the merger’s completion, but have perked up a bit in 2023 after a major slump in late-2022. They retreated 5% in pre-market trading as investors reacted to the earnings report.