Warner Bros Discovery Pulled Off An Impressive Turnaround In The Streaming Arena

When it comes to streaming, Warner Bros Discovery Inc WBD reached profitability before its legacy media rivals such as The Walt Disney Corporation DIS, Comcast Corporation CMCSA and Paramount Global PARA. However, with a slump in advertising revenue, Warner Bros missed both top and bottom-line estimates with its fourth quarter results. After the report, shares fell 12% in early trading on Friday.

Fourth Quarter Highlights

For the quarter that ended on December 31st, Warner Bros reported revenue of $10.28 billion that came short of LSEG’s estimate of $10.35 billion. 

Warner Bros made a fourth-quarter net loss of $400 million, or 16 cents per share, narrowing down its 2023’s comparable quarter loss of $2.1 billion, or 86 cents per share. Adjusted EBITDA dropped 5% YoY to $2.5 billion, with the drop attributed to the underperformance of studio revenue that was the result of the unforseen WGA and SAGAFTR strikes. Studio revenue tanked 17% to $3.17 billion.

Excluding the impact of foreign currency exchange, Discovery reported a 14% decline in linear television advertising revenue with a 4% drop in actual distribution revenue.

On a brighter note, Warner Bros Discovery ended 2023 with a 86% YoY rise in free cash flow that amounted to $6.16 billion. With the Olympic Games on this year’s repertoire, CFO Gunnar Wiedenfels is expecting another strong year of FCF but declined to provide an official guidance. 

Although Warner Bros still has $44.2 billion of gross debt, it paid off $12 billion of debt over the last two years.

Warner Bros Made Streaming History 

Warner Bros got ahead of the legendary Disney, Comcast and its NBCUniversal, as well as Paramount Global by reaching profitability on the streaming front. Max wrapped up 2023 by becoming profitable, with full-year adjusted EBITDA amounting to $103 million. This success is owed to dramatically lowered content spending.

Although Warner Bros expects Max another profitable full-year, it will be in for a loss during the first half of the year due to increased content spending. By the end of the year, Max’s advertising tier that is currently only available in the U.S., will expand to 40 international markets. Warner Bros guided for Max’s 2025 EBITDA of $1 billion for 2025.

For the quarter, Max expanded its global direct-to-consumer subscribers to 97.7 million, which represents a 2% increase compared to the previous quarter.

Disney+ reported 111.3 million core subscribers in the fourth quarter, as it lost 1.3 million subscribers due to price hikes. But Disney, the preeminent creator of entertainment content on the planet, is merely claiming it's on track to become profitable by the end of this fiscal year.

NBCUniversal, that Comcast presents as a more creator-friendly studio for filmmakers and talent compared to its rivals, also still hasn’t reach profitability. Its flagship streaming offering, Peacock recorded revenue beyond $1 billion for the first time during the fourth quarter that ended on December 31st. Comcast reported Peacock’s revenue rose 57% to $1.03 billion as it added 3 million subscribers, but although it narrowed its losses, it still ended up with an adjusted loss of $825 million. Meanwhile, Paramount began the year with the announced layoffs that include about 800 of its U.S. staff. Returning to earnings growth this year is a priority for Paramount that also tweaked its content strategy. Paramount is hoping to join Warner Bros on the profitable side by focusing on Hollywood hits and producing fewer local and international original content. 

Warner Bros Discovery told a remarkable turnaround story in the streaming kingdom.

It is no overstatement to say that Warner Bros did a great job not only in navigating the challenges of the highly competitive streaming arena but also in setting the course for a profitable future. 2023 was undoubtably a hell of a year for media entertainment companies that suffered huge setbacks from the strikes. But it also brought a remarkable story of Warner Bros Discovery’s journey from financial hardship to being the first to reach profitability in a constantly evolving landscape.

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