Shares of Warner Bros. Discovery fell over 10% in after-hours trading on Wednesday as the media giant’s net loss for the third quarter of 2024 widened to $9.99 billion and revenue fell 6% year over year, missing Wall Street expectations.
“This has been a busy, productive quarter, albeit against the backdrop of what continues to be tough market conditions,” WBD CEO David Zaslav told analysts on Wednesday. “Two plus years after launching our company, we are still in the midst of a long term transition marked by many notable progress points, as well as some tough challenges.”
Here are the top-line results:
Net loss: $9.99 billion, compared to a loss of $1.24 billion a year ago.
Earnings Per Share: A loss of $4.07 per share, compared to an estimated loss of 18 cents per share expected by analysts surveyed by Zacks Investment Research
Revenues: $9.7 billion, a 6% year over year decrease, compared to $10.07 billion expected by analysts surveyed by Zacks Investment Research
Adjusted EBITDA: $1.8 billion, a 16% decrease.
Subscribers: Added 3.6 million subscribers for a total of 103.3 million globally
The net loss included $11.2 billion in charges during the quarter, including a $9.1 billion non-cash goodwill impairment charge from the networks segment and $2.1 billion in restructuring expenses and other adjustments.
The goodwill impairment was triggered in response to the difference between WBD’s market capitalization and the book value of the networks segment, continued softness in the U.S. linear advertising market, and uncertainty related to affiliate and sports rights renewals, including the NBA.
“It’s fair to say that even two years ago, market valuations and prevailing conditions for legacy media companies were quite different than they are today, and this impairment acknowledges this and better aligns our carrying values with our future outlook,” Zaslav said.
Chief financial officer Gunnar Wiedenfels added that the outcome from the impairment charge is “consistent with where the market is” as it pertains to the linear television market and what the investment community reflects in the company’s stock price, which has fallen over 68% since the April 2022 merger between Warner Media and Discovery.
“There is a transition in the industry. There is a transformation of the company,” Wiedenfels added. “We are actively driving that to some extent and the goodwill impairment at the end of the day is the accounting reflection of that state of the industry and our strategy.”
Streaming posts a loss despite continued subscriber growth
The direct-to-consumer division surpassed 103 million subscribers during its second quarter of 2024, including 52.4 million domestic subscribers and 50.8 million international subscribers. But the streaming division reported a widened loss of $107 million, compared to a $3 million loss in the prior-year period. The segment’s results includes Max, Discovery+ and traditional HBO cable subscriptions.
Total revenue in the direct to consumer division fell 6% year over year to $2.57 billion. Distribution revenue came in flat at $2.2 billion, primarily driven by a 7% increase in subscribers following the launch of Max in Latin America
in the first quarter of 2024 and in Europe in the second quarter of 2024, partially offset by continued domestic linear wholesale subscriber declines.
Advertising revenue shot up 98% to $240 million, primarily driven by higher domestic Max engagement and ad-lite subscriber growth. Content revenue fell 70% to $123 million, primarily driven by lower volume of third-party licensing deals. Other revenue fell 67% to $3 million.
Average revenue per user came in at $12.08 domestically, $3.85 internationally and $8 globally. The increase in global DTC ARPU was primarily driven by he growth of the ad-tier domestically along with continued subscriber mix shift from linear wholesale to other distribution channels, partially offset by growth in lower ARPU international markets.
Max has launched in 65 international markets, but is still not present in over half of its global addressable markets, including Australia, Japan, the UK, Germany and Italy. The company plans to continue launching in new markets over the next 18 to 24 months, with a launch in the United Kingdom slated for 2026.
“At the same time, we’ve been very active in reimagining our existing partnerships with international distributors of our linear channels to encourage them to support the distribution of Max in ways that are a true win win for both parties,” Zaslav continued. “These partnerships help get Max on the devices of more consumers faster and at a fraction of the acquisition cost. We’ve done more than 150 of these deals to date in Europe and in Latin America, and you’ll begin to see them really pay off and we have more to come.”
The WBD CEO also touted the benefits of the company’s ongoing bundling efforts on reducing churn and lowering the cost of entry for consumers. WBD recently launched the Disney+, Hulu, Max bundle and will be part of Venu Sports this fall.
While the biggest near-term upside opportunity is in the U.S., WBD executives expect the bulk of its subscriber growth to come from markets outside of the U.S., and the company is looking to monetize in all regions. WBD recently raised the price of the ad-supported and ad-free versions of Max in the U.S., which resulted in better-than-expected churn.
“I expect the DTC segment to be nicely profitable for the full year, and with a strong ramp in the second half, which will represent a meaningful step towards our 2025 EBITDA target of at least $1 billion,” Wiedenfels said. “That said, as I’ve noted, we will always prioritize investing to secure profitable Max subscribers versus maximizing near term EBITDA in any given quarter or year.”
Networks and the loss of the NBA
Networks revenue fell 8% year over year to $5.27 billion, while adjusted EBITDA fell 8% year over year to $1.998 billion.
The revenue decline included a 9% decrease in distribution revenue to $2.68 billion, primarily driven by a 9% decrease in domestic linear pay-TV subscribers and the impact of the company’s exit from AT&T SportsNet, partially offset by a 5% increase in domestic affiliate rates, and a 10% decline in advertising revenue to $2.2 billion, primarily driven by domestic networks audience declines of 13% and the soft advertising market in the U.S.
Content revenue grew 5% to $299 million, primarily driven by the timing of third-party licensing deals, partially offset by lower inter-segment content licensing to DTC. Other revenue fell 1% to $84 million.
Zaslav declined to comment on how the loss of the NBA starting in the 2025-2026 season would impact WBD’s future carriage negotiations.
“As you look at our different sports services around the world, you’ll see that we’re one of the leaders of sports globally,” he said.
Warner Bros. Discovery has filed a lawsuit against the NBA after its matching proposal for Amazon’s $1.8 billion per year rights package was rejected.
“We have confidence in our position,” Zaslav said. “The judge will decide whether our matching right, which is 11 pages long, represents and whether what we offered matched or not. We’re getting back to work and the lawyers will handle this and the judge will decide, and off we’ll go.”
Outside of the NBA, Warner has the rights to NASCAR, the NHL, MLB and March Madness college basketball, and it recently acquired the U.S. rights to the French Open tennis tournament starting in 2025. WBD also struck a licensing agreement with ESPN for the College Football Playoff.
Studios slide back
Total studios revenue fell 5% year over year to $2.45 billion, while adjusted EBITDA plummeted 31% to $210 million.
Distribution revenue was flat at $3 million, while content revenue fell 7% to $2.2 billion. Other revenue grew 19% to $209 million, primarily driven by the June 2023 opening of Warner Bros. Studio Tour Tokyo.
Excluding the impact of foreign exchange, TV revenue fell 27%, primarily driven by the timing of initial telecast productions as well as lower licensing sales. Games revenue fell 41%, dragged down by the weak performance of Suicide Squad: Kill the Justice League this year, compared to the strong performance of Hogwarts Legacy in the prior year.
Theatrical revenue grew 19% as a result of higher home entertainment revenue from “Dune: Part Two,” and higher box office carryover from “Godzilla x Kong: The New Empire,” which was released at the end of March.
Break-Up and Sale Speculation
Executives also addressed a recent report that WBD is looking to pursue smaller asset sales after mulling a possible break-up that would separate its studio and direct-to-consumer divisions from its linear networks and some or all of its debt.
“We’re a public company and we’re very well aware of our responsibility to have a view on whatever strategic options are out there,” Wiedenfels said. “The same applies to the board. We’re very clearly focused on evaluating everything beyond just running the operational business. You shouldn’t be surprised to see us engaging in whatever M&A processes are going on out there. You shouldn’t be surprised to see us engaging in partnership discussions.”
“We feel very good about where we are,” Zaslav added. “We have to look at all, and consider all options, but the number one priority is to run this company as effectively as possible. And you will see as our studio begins to grow, and if our global direct-to-consumer business scales the way we believe it’s going to, then that’ll be very apparent to investors, and we expect that will create shareholder value.”
Elsewhere, WBD repaid $1.8 billion of debt during the quarter, ending the period with $3.6 billion of cash on hand, $41.4 billion of gross debt and 4 times net leverage. The company purchased $3.4 billion of debt for $2.6 billion through a tender offer funded by cash on hand and a €1.5 billion senior notes offering.
Cash provided by operating activities decreased 39% to $1.2 billion. Free cash flow fell 43% to $976 million, driven by net content investment against the modest cash savings with the start of the WGA strike in the prior year and lower operating profits partially offset by lower cash restructuring costs.
Looking ahead, Wiedenfels noted that the company’s free cash flow will be impacted by normal semi-annual cash interest payments during the third quarter, comparisons against last year’s “most strike-impacted quarters” and a meaningful drag from the Olympics, in part due to “working capital dynamics.”
“I remain confident in our ability to continue to both generate meaningful free cash flow in the second half and pay down debt, and we expect to finish the year at lower net leverage then at the start of the year,” Wiedenfels added. “I remain very proud of our organization’s dedication, resiliency and focus, while maintaining the flexibility and adaptability within an industry going through so much change.”
