Warner Bros. Discovery Narrows Streaming Loss Despite Sub Loss, Ups Overall Savings Target To $5B

Warner Bros. Discovery reported a second sequential quarter of upbeat results in its direct-to-consumer streaming business in Q2, despite losing 1.8 million streaming subscribers, and despite marketing and other costs associated with its Max launch.

The company reported a $3 million loss in the streaming unit, compared to a $558 million loss in the year-ago period. That followed its report of a $50-million profit in the unit in this year’s first quarter. That put the unit’s EBITDA in positive territory for the year’s first half, according to CEO David Zaslav.

The results are in line with Zaslav’s stated determination to help drive the streaming industry’s shift in emphasis from subscription growth to profitability. In May, the company announced that it expects the streaming unit to achieve profitability for full-year 2023 — a year earlier than previously forecast. Zaslav has reduced streaming spending and reversed previous management’s policy of strictly limiting content licensing to try to support streaming growth through content exclusivity.  

Streaming subscriptions totaled 95.8 million at the end of Q2, down from 97.6 million in Q1, attributed largely to some Discovery+ users cancelling in favor of Max, which includes a significant amount of Discovery content, as well as HBO Max content. Analysts had expected slightly lower subscription losses (1.6 million).

Network TV revenue took a 13% hit (excluding foreign currency exchange losses),  attributed to audience declines at its domestic general entertainment and news networks and soft advertising in the U.S. and some international markets. WBD’s revenue was also impacted by the absence of NCAA March Madness Final Four and Championship coverage on its networks this year.

The networks unit’s overall EBITDA declined 8%, to $2.17 billion, driven by a 6% overall revenue decline, to $5.76 billion.

The studios business saw revenue drop 23%, to $2.58 billion, and EBITDA drop 25%, to $306 million. Last year’s second quarter was bolstered by the hit “The Batman,” but Q2 2023’s “The Flash” proved a major disappointment. This year’s second half also saw heavy marketing expenses for “Barbie,” which has emerged as a mega-hit in Q3.

WBD posted a 51-cent loss per share, missing analysts’ expectations of a loss of 42 cents per share, and reported overall revenue of $10.4 billion — down 4% versus the year-ago period and slightly below analysts’ expectations.

However, earnings before interest, taxes, depreciation and amortization (EBITDA) rose 22%, to $21.5 billion, beating estimates, and net loss narrowed from $1.86 billion to $1.24 billion.

WBD also doubled its free cashflow, to more than $1.7 billion, far exceeding Wall Street expectations. WBD has previously reported paying down $9 billion in debt. Debt stood at $47.8 billion in Q2, with a leverage ratio of 4.6 trailing earnings, and the company announced its intention to retire up to about $2.7 billion more in debt.

“We remain bullish with respect to our delivering story and expect to be comfortably below 4.0x levered by the end of the year and at our target of 2.5-3.0x gross leverage by the close of 2024,” Zaslav stated in the earnings release.

WBD also upped its target for cost savings following its April 2022 creation via the WarnerMedia Discovery merger from $4 billion to more than $5 billion over the next two years.

“All of which positions us well to lean into growth opportunities that will ultimately drive shareholder value, to include our Direct-to-Consumer business, which, in the wake of the successful launch of Max in the U.S., is tracking well ahead of our financial projections,” Zaslav said.

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