The exterior of the Warner Bros. campus. Discovery Atlanta is pictured after the Writers Guild of America began its strike against the Alliance of Motion Picture and Television Producers, in Atlanta, Georgia, on May 2, 2023.
Alyssa Pointer | Reuters
Discovery by Warner Bros missed analysts’ targets for both profit and revenue in the fourth quarter as advertising declined and the company failed to provide free cash flow guidance for 2024.
Shares of Warner Bros. Discovery closed down 10% on Friday after the report.
The company’s net loss for the fourth quarter was $400 million, or 16 cents per share, compared with a loss of $2.1 billion, or 86 cents per share, in the year-ago period. Warner Bros. Discovery reported a 14% decline in linear TV advertising revenue, excluding currency changes, and a 4% drop in actual distribution revenue.
“This business is not without its challenges,” CEO David Zaslav said during the company’s fourth-quarter earnings conference call. “Among these, we continue to address the impact of ongoing disruption to the pay TV ecosystem and a disorganized, linear advertising ecosystem. We challenge our leaders to come up with innovative solutions.”
See what the company said about it quarter ended December 31versus analyst estimates, according to LSEG, formerly Refinitiv:
- Loss per share: 16 cents vs. 7 cents expected
- Income: $10.28 billion vs. $10.35 billion expected
Adjusted EBITDA in the fourth quarter was $2.5 billion, down 5% from a year ago, excluding the impact of currency, as studio revenue lagged as a result of the Writers Guild of America and Screen Actors Guild-American strikes Federation of Television and Radio Artists.
Studio revenue fell 17% to $3.17 billion in the quarter. Adjusted EBITDA for the unit fell 29% to $543 million.
“The studio has really underperformed, including at the end of the year where we had some real struggle,” Zaslav said during the earnings conference call.
Free cash flow
Warner Bros. Discovery generated $3.31 billion in free cash flow in the fourth quarter and ended 2023 with $6.16 billion in free cash flow, an 86% year-over-year increase. Zaslav has prioritized boosting free cash flow and shrinking the company’s debt.
Still, the company said there will be headwinds in free cash flow in 2024 as content spending rises with the conclusion of the writers’ and actors’ strikes last year.
Chief Financial Officer Gunnar Wiedenfels declined to provide guidance on free cash flow for 2024, while noting that the Olympics, the commitment to increase Max revenue with increased spending and the uncertainty of annual EBITDA could affect cash generation this year .
“I expect 2024 to be another strong free cash flow year,” Wiedenfels said. “I deliberately don’t want to give a specific quantitative guidance on free cash flow.”
Warner Bros. Discovery paid down $1.2 billion in debt in the quarter and $5.4 billion in debt due in 2023. It still has $44.2 billion of gross debt remaining after paying down $12 billion in debt over the past two years.
Maximum profitable for 2023
The company’s flagship streaming subscription service, Max, ended 2023 profitable, with full-year adjusted EBITDA of $103 million.
Zaslav has dramatically reduced content spending for the streaming service following the merger of WarnerMedia and Discovery in 2022. His efforts have helped Max reach profitability before the streaming divisions of legacy media rivals Disney, Comcast‘s NBCUniversal and Paramount Global.
The company reported 97.7 million global direct-to-consumer subscribers, up 2% from the previous quarter.
The company said Max would be profitable in 2024, although it would lose money in the first half of the year as the studio ramps up content spending before recovering in the second half. The prediction of Warner Bros. Discovery Max will generate EBITDA of $1 billion by 2025.
Max’s ad tier, currently only available in the U.S., will expand to 40 international markets by the end of 2024, Zaslav said during the call.
Sports KE
Zaslav did not offer pricing details for the company’s upcoming sports joint venture, announced earlier this month with Disney and Fox, but reiterated that the product will be for the 60 million US households that do not currently have a cable subscription.
Zaslav noted that one of the advantages of the service, which is set to launch in the fall of 2024, is that consumers won’t have to worry about finding the right channel for playoff games for Major League Baseball, the National Hockey League or the National Basketball Association. because the streaming app will automatically send consumers to any game on Fox, ESPN, TNT or TBS.
The Chairman and CEO of Warner Bros. Discovery’s David Zaslav attends the world premiere of the restored 4k 1959 film “Rio Bravo” presented on opening night of the 2023 TCM Classic Film Festival at the TCL Chinese Theater in Hollywood, California, April 13, 2023.
Aude Guerrucci | AFP | Getty Images
“We don’t see a lot of people unsubscribing from cable to get it,” Zaslav said. “The younger generation that’s not signing up, we’re able to catch up with the ones we’re missing.”
Warner Bros. Discovery is continuing negotiations with the NBA for renewed media rights, but will not overpay based on the company’s internal estimates of the league’s value, Wiedenfels said.
“It’s very easy to lose control of sports rights investments,” Wiedenfels said. “We don’t do it that way. We know exactly what we value and we remain disciplined in our discussions.
Disclosure: NBCUniversal is the parent company of CNBC.
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