Warner reduced net loss by 10%, but revenues decreased

The company announced its Q1 financial results, reporting a profit of $86 million for its direct-to-consumer segment, marking a 72% increase year over year.

9 MAY 2024

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Warner Bros. Discovery (WBD) disclosed its first-quarter financial results, reporting a 10% reduction in its net loss to $966 million compared to a loss of $1.07 billion in the same period last year. Despite this improvement, the media conglomerate experienced a decline in revenues, which stood at $9.96 billion, marking a 7% drop year over year. These figures fell short of Wall Street expectations, leading to an initial 6.5% decline in WBD shares during pre-market trading, although the stock rebounded once the market opened.

The company reported a loss of 40 cents per share, missing analysts' expectations of a loss of 24 cents per share. The adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) amounted to $2.1 billion, down 19% from the previous year.

David Zaslav, President & CEO of WBD, said: “We are pleased with our progress in the first quarter as evidenced by strong results in important KPIs. We delivered meaningful growth in our streaming business with a nice acceleration in ad sales, generating nearly $90 million in positive EBITDA for the quarter. We will soon be rolling out Max to 29 countries across Europe, and the content lineup for Max over the coming year is one of our strongest ever. Warner Bros. Pictures also had a strong start to the year as the first studio to reach $1 billion in both overseas and global box office, and they have a great slate in the works. Importantly, we once again delivered strong free cash flow, even in our seasonally weakest FCF quarter. We continue to make bold moves to transform our company for the future as we position ourselves to take full advantage of the opportunities ahead.”

The company added 2 million subscribers in the first quarter, bringing its total global subscribers to 99.6 million. The direct-to-consumer division, which encompasses traditional HBO cable subscriptions and streaming services such as Max and Discovery+, reported a profit of $86 million, marking a 72% increase year over year.

According to Parrot Analytics, while demand for original content drives subscription growth, library content is key for customer retention, an increasingly crucial element of all streaming strategies as consumers have more choice and easier ways to cancel than ever. In Q1 2024, Max (16.1%) trailed Netflix in demand share, but stood higher than it did last quarter (15.6%), and well ahead of HBO Max in Q1 2023, at 14.4%.

Max solidified its grip on second place in this category, moving from a 0.4% lead over Hulu in Q4 2023 to a 0.8% lead in the latest quarter. The return of the critically acclaimed Hacks in Q2 and the IP-powered slate of Q3 and Q4 will try to build on this lead. A fully combined Hulu (15.3%) and Disney+ (10.0%) is positioned to top both Netflix and Max when it comes to total on-platform demand for content.

After strategic leaks to the press to test the waters in late 2023, Zaslav has thrown cold water on the idea of a Paramount merger. Nevertheless, until a deal is done, it’s worth exploring what these combined companies would bring to the table from a content demand perspective. If Paramount were acquired by WBD and its sports rights added onto the Spulu offering, this would significantly boost the value of a standalone sports streamer, bringing in CBS Sports (i.e. more NFL games) into the fold. While Zaslav built his business on cable, it’s unclear whether he has the stomach to further expose his company to the shrinking linear TV business.

Distribution revenue grew 1% year over year to $2.19 billion, while advertising revenue climbed 70% to $175 million. However, content revenue fell 46% to $99 million due to lower volume of third-party international licensing deals.

Looking ahead, WBD anticipates continued robust international growth as it expands its Max streaming service to 29 countries across Europe. However, the company expects some seasonality-related impact on U.S. subscriber growth in the second quarter, particularly in relation to sports content. Despite facing headwinds such as declines in TV advertising and challenges in its studios segment, WBD remains focused on achieving its financial targets. CFO Gunnar Wiedenfels expressed confidence in the company's ability to surpass its $1 billion EBIT target for 2025 and pursue growth opportunities beyond.

In response to its financial performance, WBD announced initiatives to reduce debt, including a $1.75 billion cash tender offer. The company ended the quarter with $3.4 billion in cash on hand and continues to explore avenues for cost savings and operational efficiencies. WBD shares have experienced significant declines over the past year, reflecting investor concerns and the evolving landscape of the media industry. Despite these challenges, the company remains committed to its long-term strategic objectives.