Wall Street Cautiously Bullish About HBO Max So Far

Presley Ann/Getty Images for WarnerMedia
John Stankey, WarnerMedia chief, speaks onstage at the HBO Max WarnerMedia Investor Day presentation on Oct. 29.

"AT&T exceeded expectations," Wells Fargo's Jennifer Fritzsche wrote, while Cowen's Colby Synesael lauded content, interface and pricing, but was "skeptical" of financial guidance.

A day after AT&T and WarnerMedia executives unveiled their plans for HBO Max, the direct-to-consumer streaming service that will launch in May, including its pricing, content and and 75 million to 90 million global subscriber target by year-end 2025, Wall Street analysts shared their mostly positive takeaways.

Wells Fargo analyst Jennifer Fritzsche, in a report titled "They Got a Win!," said she attended the Burbank event and came away finding that "one would see the quantity AND (more importantly) quality of content was there," and "the breath of the content reaches demos (especially female in the roughly 30-50 year range and children), which were thought to be not part of the normal HBO reach." She also called the monthly subscription price of $14.99 in the U.S. "slightly better than feared." 

The main question Fritzsche raised was tied to execution. "How A&TT capitalizes on its embedded base of about 170 million customer relationships still needs to be seen — but the wireless subs offer low-hanging fruit and lead us to believe initial guide for sub growth is likely conservative."

Her bullish conclusion: "AT&T exceeded expectations in their media debut and proved that (while some legacy Time Warner people have left) the WarnerMedia brand is not broken. Simply put, our experience in Burbank left us with the view that AT&T is very much on the (albeit competitive) media field...not sitting on the bench."

Cowen analyst Colby Synesael said he also "came away impressed with the quality of the content that HBO Max will offer and believe that at $14.99 it provides a compelling value for young adults/adults."

He praised the programming lineup and user interface, saying: "The service will include a dizzying amount of new and old content including shows and movies that are intended to cut across all key demos. The distinguishing factor with the OTT interface is its 'recommended by humans' component."

But Synesael took issue with the company's financial guidance for HBO Max. "We are more skeptical of its initial financial guidance, including its $5 billion 2025 revenue target," he wrote in a report. And he concluded about AT&T: "While we remain encouraged by its three-year plan, we see increasing execution risk in 2020."

AT&T projected that HBO Max would generate $5 billion in incremental revenue in 2025, including about $4 billion to $4.5 billion from subscriptions and about $500 million to $1 billion from other sources, such as advertising and content licensing. "It is not clear how this will occur using the information provided in the subscriber forecast chart used in the presentation," Synesael argued though.

"While the chart shows 34 million existing HBO subs in 2019 and that this number slowly declines as HBO Max subs coming through [a pay TV distributor] are expected to decline as customers continue to cut the cord, it appears to be close to about 32 million by 2025, implying about 18 million subs would be new to the platform," he explained. Even if these 18 million subs were all paying $15 directly to AT&T (which is unlikely as some are likely to come through distributors or other third-party OTT platforms or be lower average revenue per user advertising VOD subs), this would only equate to about $3 billion versus the $4 billion to $4.5 billion indicated."

The Cowen analyst said he asked AT&T executives about this. "They noted that the chart was wrong and that the mix will be closer to 50/50, implying about 25 million subs will be new. While this would equate to $4.5 billion, again this assumes the full $15 average revenue per user, which seems aggressive. One could argue the revenue chart may have been mislabeled and also includes international revenue and/or may assume a higher revenue share with the [pay TV distributors] than currently, this was not made clear."