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Warner Bros. Discovery shares drop 10% as firm misses estimates, warns of 2024 money circulate headwinds


The outside of the Warner Bros. Discovery Atlanta campus is pictured after the Writers Guild of America started its strike towards the Alliance of Movement Footage and Tv Producers, in Atlanta, Georgia, on Could 2, 2023.

Alyssa Pointer | Reuters

Warner Bros. Discovery missed analyst targets for each revenue and income within the fourth quarter as promoting slumped and the corporate failed to offer free money circulate steerage for 2024.

Shares of Warner Bros. Discovery closed down 10% on Friday after the report.

The corporate’s fourth-quarter web loss was $400 million, or 16 cents per share, in contrast with a lack of $2.1 billion, or 86 cents per share, through the year-ago interval. Warner Bros. Discovery reported a 14% decline in linear tv promoting income excluding modifications in overseas trade and a 4% drop in precise distribution income.

“This enterprise just isn’t with out its challenges,” Chief Govt Officer David Zaslav mentioned through the firm’s fourth-quarter earnings convention name. “Amongst them, we proceed to face the impacts of ongoing disruption within the pay TV ecosystem and a dislocated, linear promoting ecosystem. We’re difficult our leaders to search out modern options.”

Here is what the corporate reported for the quarter ended Dec. 31, versus analysts’ estimates, based on LSEG, previously generally known as Refinitiv:

  • Loss per share: 16 cents vs. 7 cents anticipated
  • Income: $10.28 billion vs. $10.35 billion anticipated

Fourth-quarter adjusted EBITDA was $2.5 billion, down 5% from a yr in the past, excluding the influence of overseas trade, as studio income lagged because of strikes by the Writers Guild of America and the Display screen Actors Guild-American Federation of Tv and Radio Artists.

Studio income dropped 17% to $3.17 billion within the quarter. Adjusted EBITDA for the unit fell 29% to $543 million.

“The studio has actually been underperforming, together with the top of the yr, the place we had some actual battle,” Zaslav mentioned through the earnings convention name.

Free money circulate

Warner Bros. Discovery generated $3.31 billion in free money circulate within the fourth quarter and ended 2023 with $6.16 billion in free money circulate, up 86% from a yr prior. Zaslav has prioritized boosting free cash flow and shrinking the corporate’s debt.

Nonetheless, the corporate mentioned there can be free money circulate headwinds in 2024 as content material spend will increase with the completion of the writers’ and actors’ strikes final yr.

Chief Monetary Officer Gunnar Wiedenfels declined to provide free money circulate steerage for 2024 whereas noting that the Olympics, a dedication to rising Max income with elevated spend and the uncertainty of annual EBITDA might all weigh on money era this yr.

“I anticipate 2024 to be one other robust free money circulate yr,” Wiedenfels mentioned. “I intentionally don’t wish to give a selected quantitative free money circulate steerage.”

Warner Bros. Discovery paid down $1.2 billion of debt within the quarter and $5.4 billion in debt in 2023. It nonetheless has $44.2 billion of gross debt remaining after paying off $12 billion of debt within the final two years.

Max worthwhile for 2023

The corporate’s flagship subscription streaming service, Max, ended 2023 worthwhile, with full-year adjusted EBITDA of $103 million.

Zaslav has dramatically reduce content material spending for the streaming service since merging WarnerMedia and Discovery in 2022. His efforts have helped Max attain profitability earlier than the streaming divisions of legacy media rivals Disney, Comcast‘s NBCUniversal and Paramount Global.

The corporate reported 97.7 million world direct-to-consumer subscribers, a 2% improve from the earlier quarter.

The corporate mentioned Max can be worthwhile in 2024, although it will lose cash within the first half of the yr because the studio will increase content material spending earlier than recovering within the second half. Warner Bros. Discovery forecast Max would generate EBITDA of $1 billion for 2025.

Max’s promoting tier, presently solely accessible within the U.S., can be rolled out to 40 worldwide markets by the top of 2024, Zaslav mentioned through the name.

Sports activities JV

Zaslav did not supply any pricing particulars for the corporate’s forthcoming sports activities joint venture, introduced earlier this month with Disney and Fox, however he reiterated the product can be for the 60 million U.S. households that do not presently subscribe to cable.

Zaslav famous one of many advantages to the service, set to launch within the fall of 2024, is shoppers will not have to fret about discovering the proper channel for playoff video games for Main League Baseball, the Nationwide Hockey League or the Nationwide Basketball Affiliation, as a result of the streaming app will robotically ship shoppers to any sport on Fox, ESPN, TNT or TBS.

President and Chief Govt Officer of Warner Bros. Discovery David Zaslav attends the world premiere of the 4k restorated 1959 film “Rio Bravo” introduced on the Opening Evening of the 2023 TCM Basic Movie Competition within the TCL Chinese language Theatre in Hollywood, California, April 13, 2023.

Aude Guerrucci | AFP | Getty Pictures

“We do not see lots of people unsubscribing to cable as a way to get this,” Zaslav mentioned. “The youthful era that’s not subscribing, we’re capable of go after those who we’re lacking.”

Warner Bros. Discovery continues to barter with the NBA for renewed media rights, however will not overpay based on the corporate’s inside estimates of the league’s worth, Wiedenfels mentioned.

“It is very simple to lose management over sports activities rights investments,” Wiedenfels mentioned. “That is not how we do it. We all know precisely what worth we assign, and we keep disciplined throughout our discussions.

Disclosure: NBCUniversal is the father or mother firm of CNBC.

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