Warner Bros. Discovery (WBD) stock rose about 12% on Thursday after the company reported strong streaming results in the third quarter. However, revenue fell short of expectations as the media giant struggled with a decline in its studio division and a continued decline in its linear TV business.
The stock pared its gains by mid-afternoon and was up a modest 10% by market close.
Revenue was $9.62 billion, below the Bloomberg consensus estimate 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 with a loss of $0.17 in the year-ago period. Consensus estimates had expected a loss of nearly $0.09 per share.
In the second quarter, WBD recorded a large $9.1 billion impairment charge related to its television networks division following the loss of key NBA media rights. The company sued the NBA in July for “unreasonable rejection” of its matching rights offer, and is currently embroiled in a lawsuit.
The brightest spot in the quarter was streaming, which added 7.2 million subscribers, beating expectations for net additions of 6.1 million and marking the company’s largest quarterly subscriber increase ever. This addition also exceeded the 700,000 subscriber loss the company reported in the same period last year.
The subscriber growth is driven by the recent launch of Max in markets outside the U.S., including Latin America and Europe, and increased bundling with competitors. Major shows such as the second season of “House of the Dragon” and the Olympics also helped boost this metric.
Excluding strong subscribers, the company’s streaming ad revenue increased 49% year over year.
Separately, the division posted a profit of $289 million in the quarter, compared to a profit of $111 million in the third quarter of 2023. Recent price increases are boosting profits. The company increased the price of Max’s ad-free plan in June.
WBD management said on an earnings call that the third quarter marked a “critical inflection point” and that revenue growth, profit growth and subscriber growth are expected to continue this quarter.
The company also has upcoming sports streaming partnerships with Disney (DIS) and Fox (FOXA), but a judge temporarily blocked the launch citing antitrust concerns.
Network sector continues to decline
Despite streaming’s success, other parts of the business continued to be under pressure.
Advertising revenue in the network division plunged 13% year over year, after falling 10% in the second quarter and 11% in the first quarter. Analysts surveyed by Bloomberg had expected a more modest 7% decline.
story continues
Amid the loss of NBA rights, pressure on affiliate fees – the fees pay-TV providers pay network owners to operate their channels – increased, and distribution revenue fell 7%.
As a result, Deutsche Bank predicted that total affiliate revenue could reach $560 million in 2026.
Devin Booker #1 of the Phoenix Suns tries to save a loose ball during the first half of a game against the Philadelphia 76ers at Footprint Center on November 4, 2024 in Phoenix, Arizona. (Chris Coduto/Getty Images) ·Chris Coduto (via Getty Images)
But its recent fleet renewal deal with Charter Communications includes WBD’s Max streaming service as part of the package, which should help stem some of the bleeding.
Bank of America’s Jessica Lief Ehrlich said ahead of the report: “If the updates to WBD and CHTR can be replicated in future trading, we believe this will be a significant improvement over expectations.” .
Still, Charter demonstrated, as Deutsche Bank warned that the company’s “series of updates planned for 2025 are with providers who have not necessarily demonstrated an inclination to include streaming products in their video packages.” As such, that may be a tall order.
Meanwhile, the company’s studio division’s revenue plummeted 17% year-on-year, mainly due to the strong performance of “Barbie” in the current fiscal year, offset by the strong performance of “Beetlejuice” and “Twisters.” “This was due to a decrease in box office revenue.” In the previous year. ”
Overall, WBD stock remains in an uphill battle, with shares down more than 25% since the beginning of the year.
Full-year adjusted EBITDA is still at risk of falling to $9 billion, according to the latest estimates from Bloomberg. This was $5 billion lower than analysts expected at the time of the merger.
Rumors are flying about the company’s next move. Bank of America analysts recently laid out potential strategic options that could include separating the company’s digital streaming and studio businesses from its traditional linear television division.
Comcast announced last week that it is considering a similar concept and could spin off its cable network into a separate company to “go on the offensive” amid recent industry turmoil.
WBD CEO David Zaslav said on a conference call that the company is considering “everything operationally and strategically” to ensure shareholder value. He also expects more consolidation because the current market is “not sustainable.”
During that time, the company engaged in aggressive cost reduction efforts, which contributed to an increase in free cash flow. This summer, the company reportedly laid off about 100 employees at its CNN network, followed by about 1,000 more employees across multiple business lines.
Alexandra Canal is a senior reporter at Yahoo Finance. X @allie_canal, follow her on LinkedIn and email alexandra.canal@yahoofinance.com.
Click here for the latest stock market news and in-depth analysis, including events that move stocks
Read the latest finance and business news from Yahoo Finance.
