Goldman Sachs Lowers Warner Bros Discovery Q1 Estimates Amid Streaming Challenges

Goldman Sachs analyst Michael Ng reiterated a Neutral rating on the shares of Warner Bros Discovery Inc WBD with a price forecast of $10.75.

The analyst lowered the first-quarter EBITDA estimate to $2.03 billion ($2.08 billion prior,
$2.06 billion Visible Alpha consensus) and revenue to $9.54 billion ($9.80 billion prior, $9.73 billion consensus).

The first-quarter DTC EBITDA forecast was reduced to $259 million (previously $320 million, consensus $287 million), driven by a lower Average Revenue Per User (ARPU) estimate of $7.42 (previously $7.59).

Expected net additions of +4.5 million in the first quarter, fueled by major TV releases like The White Lotus and international market launches, with further growth in the second quarter from Australia, Tele2 Nordic and BluTV Turkey.

ARPU is projected to decline by 5% in the first quarter due to a subscriber mix shift toward lower-ARPU international markets, wholesale growth, and bundling, partially offset by price increases and increased ad loads.

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Despite short-term EBITDA pressure, WBD is expected to surpass its $1.3 billion 2025 EBITDA target, driven by subscriber growth, new market expansion (Australia, Italy, Germany), content releases and increased AVOD penetration, Ng said.

The analyst raised the EBITDA forecast for linear networks to $1.78 billion (previously $1.64 billion, consensus $1.75 billion), while revenue was adjusted to $4.64 billion (previously $4.59 billion, consensus $4.66 billion).

Advertising revenue is now expected to decline by 14% year-over-year (previously -17%, consensus -15%), supported by strong sports programming (NHL, March Madness) and reduced upfront cancellations, despite softness in general entertainment.

The first-quarter Networks distribution revenue estimate remains at $2.62 billion, with management expecting low single-digit rate increases from new deals, compared to mid-single-digit historically.

WBD has secured five of the six largest pay-TV provider deals. However, some agreements include lower penetration for smaller networks, aligning with the company's strategy to boost Max retention through bundling.

First-quarter Studios EBITDA is now projected at $361 million (previously $484 million, consensus $395 million), with revenue lowered to $2.54 billion (previously $2.79 billion, consensus $2.92 billion) due to underperformance at the box office.

Box office results for Mickey 17 and The Alto Knights fell short, reducing content revenue estimates, though TV licensing and a favorable $200 million Suicide Squad game impairment adjustment provided partial offsets.

Price Action: WBD shares traded lower by 10.75% at $8.18 at last check Friday.

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