Warner Bros. Discovery and its stock were in Wall Street’s focus on Friday as analysts dissected its fourth-quarter and 2023 earnings report and management’s lack of outright 2024 guidance.
Before the market opened, the Hollywood conglomerate reported that it managed to turn a profit for its direct-to-consumer unit, which houses its streaming business, for the full year to the tune of $103 million in earnings before interest, taxes, depreciation and amortization (EBITDA), compared with a loss of nearly $2.1 billion for 2022. But its latest overall company earnings fell below Wall Street expectations.
“We have an attack plan for 2024 that includes the roll-out of Max in key international markets, a more robust creative pipeline across our film and TV studios, and further progress against our long-range financial goals,” WBD CEO David Zaslav said in the earnings update.
On the call, management expressed more confidence about the road ahead, but didn’t detail 2024 financial guidance.
As of 11:30 a.m. ET, shares of the entertainment giant were down 11.4 percent at $8.47 after hitting a 52-week low and its lowest point since the merger that created it in April 2022 earlier in the trading session – $8.25.
Bank of America analyst Jessica Reif Ehrlich‘s team maintained a “buy” rating with a $17 price target, noting, “with the strikes now over and early signs of the advertising market stabilizing, we believe the company remains positioned for a recovery in 2024. The company should be aided by a restarting TV production, a solid film slate, an improving ad market and the launch of DTC in several international markets.”
Guggenheim Securities analyst Michael Morris noted, “the company did not provide 2024 adjusted EBITDA guidance (qualitatively or quantitatively) and provided some puts/takes affecting [free cash flow],” the analyst noted. But he maintained his “buy” rating with a $14 stock price target following what he dubbed “mixed” fourth-quarter results.
TD Cowen analyst Doug Creutz reiterated his “outperform” rating and $15 stock price target, but similarly noted: “Management provided some general expectations for 2024 but did not provide explicit EBITDA guidance, unlike the past few years.”
Looking ahead, Creutz noted, “Key KPIs, such as engagement, churn, and advertising revenue, are expected to improve throughout the year, in part due to a stronger content slate, including the second season of House of the Dragon and the debut of The Penguin. Management reiterated their confidence around the 2025 DTC operating income before depreciation and amortization (OIBDA) target of $1 billion.”
The TD Cowen analyst also liked what he heard about free cash flow ahead. “2024 FCF is expected to be healthy, with a mix of puts and takes,” Creutz wrote. “Negatives from return to full film/TV production and the Olympics, positives from lower cash restructuring costs, interest expense, and capital expenditures.”
Wolfe Research analyst Peter Supino, who has an “outperform” rating and $35 stock price target on WBD, shared a pre-earnings call first take on Friday, focusing on the company’s overall profitability challenges.
“Warner Bros. profitability was weaker than consensus, but free cash flow (FCF) was robust,” he wrote about the fourth-quarter results. “Studio results drove about two-thirds of the miss, impacted by talent strikes, with the other 9 percent accounted for by networks and 24 percent at DTC.” He concluded: “FCF was robust at $3.3 billion (versus $2.5 billion consensus, which should bring assurance that the de-levering story/strong conversion remains in-tact, though legacy business headwinds appear to be having a more materially negative impact on earnings before interest, taxes, depreciation and amortization (EBITDA) trends.”
Brian Wieser, principal and analyst at Wall Street insights provider Madison and Wall, warned that the small 2023 DTC unit profit may not be something to celebrate at this stage. “Although the company proudly notes that the business segment produced EBITDA profitability in 2023, the overall WBD debt load and need to pursue profitability in the near term will probably lead to many of its growth constraints,” he argued.
About WBD’s ad trends, he noted that ad revenue was down sharply for the quarter and full year as it ended 2023 with $8.7 billion in ad revenue. “Despite the decline, this still ranks the company among the top 10 sellers of advertising globally outside of China,” Wieser emphasized. “Much of the story is the same as it has been both for WBD and for owners of TV properties in general.”
He also shared his take on management commentary about ad trends in the current first quarter, offering: “I interpret these comments as conveying that we should expect another quarter of single-digit declines for the total advertising business.”
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