Warner Bros. Discovery rebounds amid Q1 ad struggles, but signs of streaming life (updated)
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Updated: Warner Bros. Discovery (NASDAQ:WBD) was lower Friday morning but turned 2.5% higher in the afternoon amid an improving stock market, after a largely unsurprising first-quarter report where it noted significant struggles in advertising but pointed to a bright spot in the streaming business
Revenues of $10.7B fell 6.5% year-over-year on a pro forma basis (adjusting for the combination of WarnerMedia and Discovery), to $10.7B. On a constant currency basis, the revenues fell 5% year-over-year, or a 3% decline excluding the impact of the 2022 Winter Olympics.
That helped contribute to an attributable net loss that widened to $1.07B from a year-ago loss of $299M. Considering substantial depreciation and amortization, WBD pulled off a gain in adjusted EBITDA (to $2.61B from $2.38B).
Revenue by segment (comparisons pro forma): Studios, $3.21B (down 8.3%); Networks, $5.58B (down 11.9%); Direct-to-Consumer, $2.46B (down 2.4%).
The company's cable business wrestled with tough headwinds, a result telegraphed by Thursday's Paramount earnings. Of revenues that fell double digits, advertising revenue in particular slipped 15% to $2.24B. But distribution and content revenues in its Networks business also saw declines.
The Studio business also saw content revenues drop 8% with broad declines across TV licensing, home entertainment and theatrical (which faced a tough comparison vs. the success of The Batman the year prior).
And while the company's streaming business also saw a year-over-year dip, it also offered the most promising look at the company's transition. A drop in DTC distribution revenues was almost entirely offset by a gain in the still-small streaming ad business.
The company added a net 1.6M global DTC subscribers in the quarter to land at 97.6M. Meanwhile, global average revenue per user ticked up to $7.48 from $7.39.
"We see a number of positive proof points emerging, with DTC perhaps the most prominent," CEO David Zaslav said in reaction to company earnings. "We made a meaningful turn this quarter with $50M in segment EBITDA and 1.6M net adds, and we feel great about the trajectory we are on. In fact, we now expect our U.S. DTC business to be profitable for 2023 â a year ahead of our guidance."
Cash flow results aren't directly comparable year-over-year considering the WarnerMedia/Discovery merger last year. Cash used by operating activities was $631M, including $836M in interest payments largely tied to merger debt. And free cash flow came to -$930M.
The company wrapped the quarter with $2.6B in cash on hand, against $49.5B in gross debt (a net leverage ratio of 5.0x).
Seeking Alpha analyst Livy Investment Research notes that "near-term respites" are already reflected in the stock and that investors' next focus will be on ability to execute on transformation targets.