by The problems of Warner Bros. Discovery (WBD) does not appear to be over, as the company expects its restructuring charges to rise by another billion dollars. The company racked up significant debt and missed the consensus estimate for revenue and EPS last quarter. In this context, it may not be worth adding this entertainment title to your portfolio. Read more….
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Warner Bros. Discovery, Inc. (WBD) continues to fall as the company recently said it expects $1 billion more in restructuring charges than the company had forecast two months ago.
In May of last year, Discovery Inc. and AT&T Inc. (J) have reached an agreement to combine their assets into a new publicly traded company, with T focusing more on its wireless business and Discovery aiming to boost its content library.
On April 8, 2022, the companies said the WarnerMedia unit of T and Discovery had completed their merger to form a new combined company, WBD. Under the terms of the agreement, T received $40.40 billion in cash and WarnerMedia’s retention of certain debt upon closing.
After the mega-merger, on October 24, 2022, WBD said it expected to incur approximately $3.20 billion to $4.30 billion in pretax restructuring costs, much of which was spent reviewing the contents. Approximately $2-2.50 billion will be spent on “strategic content programming assessments.”
He also said he expected to spend $800 billion to $1.10 billion on restructuring the organization, which includes severance, retention, relocation and other related costs. In addition, facility consolidation activities and other contract termination costs were expected to be between $400 million and $700 million.
However, last week the company said it expects restructuring charges to rise by more than $1 billion to top $5.30 billion. Since its big merger, the company has made significant layoffs and a lot of planned content has also been removed. WBD also estimated that its content impairment and development write-off charges could increase by more than $1 billion to $3.50 billion by 2024.
In November, the company raised its cost synergy target to $3.50 billion from $3 billion. Shares of WBD failed to beat consensus estimates for EPS and revenue in the last quarter. Its EPS was 50.8% below analysts’ estimates and its revenue was 5% above the consensus estimate. He blamed a slow ad market and merger fees for missing the consensus revenue estimate.
Shares of WBD are down 57.9% year-to-date and 57.7% over the past year to close last trading session at $9.91.
Here is what could influence WBD’s performance in the coming months:
Mixed finance
WBD’s total revenue increased 211.8% year-over-year to $9.82 billion for the third quarter ended September 30, 2022. The company’s adjusted EBITDA increased 233. 9% year over year to $2.42 billion.
On the other hand, its net loss available to WBD was $2.31 billion, compared to $156 million the previous year. In addition, its loss per share attributed to WBD Series A common stockholders was $0.95, compared to EPS attributed to WBD Series A common stockholders of $0.24.
Mixed analyst estimates
WBD’s EPS for fiscal years 2022 and 2023 is expected to be negative. Its revenue for fiscal 2022 and 2023 is expected to increase 256.7% and 2.4% year-over-year to $43.48 billion and $44.51 billion.
Mixed evaluation
In terms of trailing 12-month EV/S, the WBD of 2.95x is 49.1% higher than the industry average of 1.98x. Likewise, its 8.35x forward EV/EBITDA is 7% above the industry average of 7.81x.
However, its forward P/S of 0.55x is 52.6% below the industry average of 1.17x. Additionally, its forward P/B of 0.47x is 74.6% below the industry average of 1.83x.
Low profitability
WBD’s trailing 12-month net profit margin is negative compared to the industry average of 4.51%. Likewise, its 12-month EBIT margin is negative compared to the industry average of 9.25%. Additionally, the stock’s trailing 12-month asset turnover rate of 0.31% is 37.2% below the industry average of 0.49%.
POWR ratings reflect bleak outlook
WBD has an overall F rating, which equates to a strong sell in our POWR Rankings system. POWR ratings are calculated by considering 118 separate factors, with each factor weighted to an optimal degree.
Our proprietary scoring system also rates each stock against eight distinct categories. WBD has a C rating for Value, in line with its mixed valuation.
It is rated D for Quality, consistent with its low profitability. Moreover, its beta of 1.35 justifies its D rating for Stability.
WBD is ranked last out of 16 stocks in the F rating Entertainment – Media Producers industry. Click here to access WBD’s growth, momentum, and sentiment ratings.
Conclusion
WBD is trading below its 50-day and 200-day moving averages of $11.59 and $15.82, respectively, indicating a downtrend. The merger meant that the company’s gross debt now stood at $50.40 billion. Additionally, it also increased its restructuring charges by $1 billion. The company’s difficulties can be gauged from its significant layoffs and planned content removal.
Given its high leverage and low profitability, it might be wise to avoid the stock now.
How Warner Bros. Discovery, Inc. (WBD) Compare yourself to your peers?
WBD has an overall POWR rating of F, which equates to a strong sell rating. You may want to consider investing in the following Entertainment – Media Producer stocks with a B (Buy) rating: AMC Networks Inc. (AMCX).
WBD shares were trading at $9.61 per share Monday morning, down $0.30 (-3.03%). Year-to-date, the WBD is down -62.31%, compared to a -18.60% rise in the benchmark S&P 500 over the same period.
About the Author: Dipanjan Banchur
Ever since he was in elementary school, Dipanjan had been interested in the stock market. This enabled him to obtain a master’s degree in finance and accounting. Currently, as an investment analyst and financial journalist, Dipanjan is particularly interested in reading and analyzing emerging trends in financial markets.
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