Warner Bros. shares Discovery (WBD) rose more than 1% in premarket trading on Thursday after the company reported strong streaming results in the third quarter. But revenue fell short of expectations as the media giant struggled with a decline in its studio segment and continued declines in its linear TV business.
Revenue came in at $9.62 billion, missing Bloomberg consensus expectations of $9.81 billion and down 3% from $9.98 billion in Q3 2023.
The company reported adjusted earnings per share of $0.05, compared to a loss of $0.17 in the same period last year. Consensus expectations had expected a loss closer to $0.09 per share.
In the second quarter, WBD took a massive $9.1 billion impairment charge related to its TV network unit after losing its core NBA media rights. The company is currently embroiled in a lawsuit after suing the NBA in July, citing the “unjustified rejection” of its matching rights proposal.
The company has struggled in recent quarters, with profits hit by a weak linear advertising environment and pressure on affiliate fees, or the fees pay-TV providers pay network owners to carry their channels.
To that end, the company’s Network segment continued to struggle with ad revenue in the division down 13% year over year after declining 10% in the second quarter and 11% in the first quarter.
Analysts polled by Bloomberg had expected a more modest decline of 7%.
The loss of the NBA rights has further exacerbated these challenges, with Deutsche Bank expecting a potential impact of $560 million on total affiliate revenue by 2026 as a result.
But a recent carriage renewal deal with Charter Communications, which included WBD’s Max streaming service as part of the package, should help stem some of the bleeding.
“If WBD’s extension with CHTR can be repeated in upcoming deals, we believe it would be a major improvement over expectations,” BofA’s Reif Ehrlich said ahead of the report.
Still, it could be a tall order, as Deutsche Bank warned that the “upcoming series of renewals in 2025 will affect providers that have not necessarily shown the same inclination to include streaming products in their video packages,” as Charter has shown.
Meanwhile, the company’s studio segment saw revenue decline 17% year over year, “driven primarily by lower box office revenues, as the year-to-date performance of ‘Beetlejuice Beetlejuice’ and ‘Twisters’ was more than offset by stronger performance of ‘Barbie’. ‘in the previous year.”
Devin Booker #1 of the Phoenix Suns tries to save a loose ball during the first half against the Philadelphia 76ers at the Footprint Center on November 4, 2024 in Phoenix, Arizona. (Chris Coduto/Getty Images) ·Chris Coduto via Getty Images
Streaming was the bright spot in the quarter with 7.2 million subscribers added, an improvement over estimates of a net increase of 6.1 million. The additions also exceeded the loss of 700,000 subscribers the company reported in the year-ago period.
The subscriber strength comes from Max’s recent launch in markets outside the US, including Latin America and Europe, along with increased bundling with competitors. Major programming, such as the second season of “House of the Dragon,” along with the Olympics, also helped improve the numbers.
Beyond the strong subscriber base, the company saw a 49% year-over-year increase in streaming ad revenue.
Additionally, the division posted a profit of $289 million in the quarter, up from the $111 million it reported in the third quarter of 2023. Recent price increases have helped profits. The company raised the price of its ad-free subscriptions to Max in June.
The company also has an upcoming sports streaming partnership with Disney (DIS) and Fox (FOXA), although a judge temporarily blocked the launch due to antitrust concerns.
Warner Bros. Discovery CEO David Zaslav poses on the red carpet during the Oscars arrival at the 96th Academy Awards in Hollywood, March 10, 2024. (REUTERS/Aude Guerrucci) ·REUTERS/Reuters
Overall, it remains an uphill battle for WBD stock, with shares down more than 25% since the start of the year.
According to Bloomberg’s latest estimates, full-year adjusted EBITDA is still at risk of falling to $9 billion. That’s $5 billion less than what analysts expected at the time of the merger.
Rumors are swirling about the company’s next move. Bank of America analysts recently laid out possible strategic options, including a split of the company’s digital streaming and studio businesses from its old linear TV unit.
Comcast said last week it is exploring a similar concept and could spin off its cable networks into a separate company to “gain offense” amid recent industry turmoil.
In the meantime, the company has committed to aggressive cost cutting, which has helped boost free cash flow. Last summer, the company reportedly laid off another 1,000 employees across multiple business sectors after eliminating the positions of about 100 employees at its CNN network.
Alexandra Canal is a senior reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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