Warner Bros. Discovery draws positive notes for 2023 despite ad-driven earnings miss
Mike Coppola/Getty Images Entertainment

Warner Bros. Discovery (NASDAQ:WBD) was eking out a rare gain (but in choppy trading around the flat line) Friday morning in a broadly lower stock market, a reversal of sharper losses for the stock in the immediate wake of the media giant's fourth-quarter earnings miss.
The stock had fallen sharply after results that showed the ongoing heavy effects of restructuring and write-offs, though it did turn higher postmarket during a more encouraging conference call highlighting the plan going forward.
The results were "messy, perfectly encapsulating a messy 2022 highlighted by several restructurings, accelerating secular headwinds and overall macro challenges," BofA analyst Jessica Reif Ehrlich said. But she noted a general bullish tone from management as it looked to turn the page to 2023.
"Overall, we continue to believe management is taking the appropriate corrective measures to the business and view the companyâs more balanced and holistic approach to generating growth and FCF as one that will prove successful longer term," she said. BofA has a Buy rating and a $21 price target.
The Buy ratings were mostly reiterated by Wall Street analysts reacting to the report. Evercore ISI, Cowen, RBC Capital Markets (noting a "compelling" valuation and calling WBD its top media/telecom pick) and Citi were among those firms maintaining Buy-equivalent ratings in the face of the earnings miss.
On the bullish side of the Street was Credit Suisse, which has a Street-high price target of $36 - implying a hefty 130% potential upside.
Advertising softness looked "severe," analyst Doug Mitchelson said, noting linear ads fell 17% year-over-year but adding management sees improvement ahead especially in the second half against easy comparisons. "We believe recent U.S. affiliate renewals suggest healthy annual escalations going forward," he noted.
"Overall, mgmt appears to be making progress on all fronts, increasing our confidence in our forecast and our view that WBD is by far the most mispriced equity in our media coverage," Mitchelson said.
On the more cautious side is Laura Martin at Needham, who maintains a Hold rating while asking "is WBD the new Disney?"
"The strategic position outlined by WBD's CEO last night mirrors DIS's diversified [revenue] streams, focus on franchise-based films, multiple [direct-to-consumer] apps, margin expansion upside, etc.," Martin said.
Disney is valued well above WBD, which might point the way to multiple expansion in the case of successful execution, she noted. WBD's key advantages are "deeper cost-cutting owing to AT&T's prior ownership" and that "WBD owns videogames, not Parks, which have higher [returns on investment capital] and target younger consumers."
In other specific media news around WBD, the company highlighted new efforts on its DC film slate, including the first new Superman movie in years, as well as a burgeoning success story in rapid adoption of its Harry Potter-based videogame Hogwarts Legacy. As for the number of high-prestige series making an exit from HBO Max, Friday brought news that HBO drama hit Succession is ending its run with the upcoming fourth season.
Overall, Seeking Alpha authors are bullish, joining analysts on Wall Street in that view, while Seeking Alpha's Quant Ratings call WBD a Hold.