Warner Bros. Discovery slides 15% amid mixed analyst views of Q3
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Warner Bros. Discovery (NASDAQ:WBD) has found a new low, slipping 14.5% in the wake of a second straight post-merger earnings report showing the difficulties of revamping the media business.
Those results reflected the advertising challenges faced by most media names in the second half of 2022, along with macroeconomic worries, though analyst reactions ran the gamut depending on varying long-term outlooks for the company as CEO David Zaslav looks to turn it around.
On the bearish side of reactions was Rosenblatt Securities, which has a Sell rating on the stock and took the opportunity to trim its price target to $8 (implying 22% downside).
The firm acknowledged the positives in increased merger synergies that the company signaled (it now expects $3.5B in benefit, compared with $3B before), but âthe meaningful offset is that macro pressures have stepped up materially and rapidly in TV advertising."
Wells Fargo's Steven Cahall is on the sidelines until visibility improves. Warner Bros. Discovery is looking to address worsening organic trends by focusing on profitability in direct-to-consumer and those additional merger synergies, he said.
"Thereâs probably more scope for earnings upside at WBD due to these synergies, but with gross leverage at 5.4x thereâs also limited tolerance for the company to miss the â23 guidance and the macro makes everything feel shakier," he added. "It's also likely not until H2 2023 that the (direct-to-consumer) proof points come through." He's Equal Weight but trimmed the price target to $13 from $16.
Evercore ISI's Vijay Jayant is bullish, sticking with an Outperform rating and $25 price target. "While we expect an incremental headwind to 2023 numbers from the macro environment, we donât see a change to the companyâs long-term free cash flow generation," Jayant wrote.
Most companies aren't providing 2023 guidance amid the macro uncertainty and "we see the fact that WBD is providing guidance as positive, even if it is somewhat hedged," Jayant said.
And Credit Suisse's Doug Mitchelson is upbeat, focusing on the lessening of merger risk in citing an Outperform rating and $36 price target (implying a robust 251% upside). Yes, the ad market has softened, and currency impacts are notable along with accelerated cord-cutting.
But pulling the combined HBO Max/Discovery+ streaming launch forward into spring 2023 is good news, and the results were "quite reasonable" overall. "We continue to see long-term upside to Warners as it leverages its content leadership position, drives cost synergies, and reduces debt leverage."
On the company's earnings call, CEO David Zaslav held forth on the heavy content changes ahead, including a focus on franchises and a dim view of direct-to-streaming movies.