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Shares of Warner Bros. Discovery closed at less than $10 on Wednesday, the lowest level since the merger was finalized in April.
The drop continues a decline set off by Warner Bros. Discovery’s third-quarter earnings report on Nov. 4. While the newly merged company disclosed an increase in subscribers for HBO Max and Discovery+, WBD missed Wall Street’s revenue expectations, in part due to an 11 percent drop in advertising revenue, which the company attributed to the tough macroeconomic environment.
“Macro challenges are hitting WBD amid a big restructuring and that’s fueling uncertainty,” Wells Fargo analyst Steven Cahall wrote last week. He noted that while WBD may see more earnings growth related to the merger, the company’s high gross leverage and tthe macroeconomic environment “makes everything feel shakier.”
The stock decline also underscores Wall Street’s increasing focus on profit, over streaming growth. Disney’s stock fell 13 percent Wednesday, after the company added subscribers, but nearly doubled its streaming losses in its fourth quarter earnings on Nov. 8.
WBD CEO David Zaslav has been at the forefront of that profits push, declaring last week that, “The grand experiment of creating something at any cost is over” and raising his savings target to $3.5 billion from $3 billion. But some on Wall Street still question the economics of merging Discovery and WarnerMedia and whether Zaslav can pull off his cost-cutting plans.
“How many balls can one company successfully juggle at once?”, asked MoffettNathanson analysts in a post-earnings take on Warner Bros. Discovery. The analysts noted that in addition to combining the two legacy companies, Zaslav is looking to reduce the company’s leverage from over five times to under three times in the next two years, relaunch a combined HBO Max/Discovery+ and figure out how to balance licensing content to third parties while keeping enough exclusive content on its streaming platforms to retain and grow subscribers.
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