Warner Bros. Discovery Turns Surprise $50M D2C Profit, But Sustains $1B Overall Loss


Warner Bros. Discovery surprised investors on Friday by reporting that its direct-to-consumer business turned a $50-million profit in this year’s first quarter, after a loss of $654 million in Q1 2022 and a loss of $217 million in Q4 2022.  

Nevertheless, the company’s overall loss widened to more than $1 billion.

“We feel great about the trajectory we are on,” said CEO David Zaslav. “We now expect our U.S. direct-to-consumer business to be profitable for 2023 – a year ahead of our guidance.”

The streaming business ended Q1 with 97.6 million global streaming subscribers — above estimates, and up from 96.1 million as of year-end 2022.

D2C ad revenue rose 29%, to $103 million, driven by subscriber growth for Discovery+’s ad-supported tier.

Distribution revenue declined 1%, to $2.17 billion, as global retail subscriber gains were more than offset by a decline in wholesale revenue. Content revenue declined 16%, to $185 million, to lower third-party licensing of HBO content.

D2C operating expenses were $2.4 million, down 24% year-over-year.  

WBD is set to combine Discovery+ and HBO Max content for a new product dubbed Max, to launch May 23.

The company’s revenue declined 6%, to $10.7 billion, which was in line with analysts’ expectations.

But its net loss $1.07 billion, or 44 cents per share was significantly worse than analysts’ consensus estimate of a 5-cent per-share loss. Although that was lower than Q4 2022's $2.1 billion loss, it was a comedown from Q1 2022's reported profit of $456 million, or 69 cents-per share. 

The loss included $1.81 billion in acquisition-related intangible assets and $95 million in pre-tax restructuring expenses.

In the networks segment, advertising revenue declined 14% year-over-year in the quarter, to $2.2 billion, after falling 14% in Q4 2022, although its adjusted EBITDA rose 10%.

The studio revenue segment's revenue dipped 8%, and adjusted EBITDA dropped 25%.

The company, which has been slashing costs to meet its goal of realizing $4 billion in savings over the next two years, ended the quarter with $49.5 billion in debt.

WBD’s stock was down 4% at Thursday’s close and down 4.5% in Friday premarket trading.

“We’ve come through some major restructurings and have repositioned our businesses with greater precision and focus,” Zaslav said in the earnings release. “And we see a number of positive proof points emerging, with DTC perhaps the most prominent.”

Zaslav described the quarter as a “meaningful turn.”

“We’ve come through some major restructurings and have repositioned our businesses with greater precision and focus. And we see a number of positive proof points emerging, with DTC perhaps the most prominent,” he said in the earnings release. “Even in today’s challenging marketplace, we are positioned to drive free cash flow and deleverage our balance sheet, and we remain confident in our strategy and ability to achieve our financial targets.”

Some analysts continue to take a wait-and-see attitude. "With revenue dropping on an annual basis across all business segments and a swing to an overall net loss, it’s clear there is still a lot of work to do to get the company on firm footing," observed Third Bridge analyst Jamie Lumley.

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