At least one Wall Street analyst is turning bearish on Warner Bros. Discovery (WBD) ahead of the company’s third-quarter earnings report.
Needham Analyst Laura Martin, who maintains a Hold rating on the stock, lowered her Q3 2022 estimates on the company’s revenue and operating income and EPS, citing macroeconomic challenges like foreign exchange headwinds and further subscribers losses in linear television.
Martin also lowered her advertising revenue estimate by 10% (to down 9% year-over-year), reflecting: “WBD guidance of high single to low double-digit declines, owing to current scatter market softness.”
At the same time, the analyst expressed optimism over the the company’s licensed content, noting that Warner Bros. Discovery should have higher content revenue than previously expected due to the licensing of “The Lord of the Rings” library movies to Amazon (AMZN) ahead of the streaming release of “The Rings of Power.”
‘Content is still king’
Leaning on the creation (and licensing) of franchise-based content seems to be an important forward-looking strategy for Warner Bros. Discovery.
According to a text from CEO David Zaslav to Semafor’s Ben Smith, the executive wrote: “Content is still king… it’s the whole game… but it has to be great (Batman, Game of Thrones, Harry Potter).”
Later on, he added: “Optionality is the holy grail … the ability to make content that matters to consumers and take it on multiple platforms around the world.”
The media giant’s commitment to franchises was further underscored earlier this week after The Hollywood Reporter reported that the company is developing a “Man of Steel” sequel with Henry Cavill reprising his role of Superman.
Other media executives seem to align with Zaslav’s vision as well.
“One of the things that Paramount Global brings to consumers is a deep collection of franchises,” Paramount CEO Bob Bakish said during Yahoo Finance’s All Markets Summit, explaining that franchises are heavily tied to the company’s overall streaming strategy.
“Our Paramount film slate is more and more tilted towards franchises,” Bakish added. “Why? Because they have built in fan bases and you can evolve the storylines. Same thing in linear television.” He cited franchise-based series like “NCIS” in addition to TV shows-turned-films like “Paw Patrol” and “SpongeBob.”
Layoffs plague Warner Bros. Discovery
Despite Warner Bros. Discovery’s content commitments, it remains plagued by a variety of problems with the company enduring yet another round of layoffs last week.
The company’s television studio cut 26% of its headcount (125 positions) across its scripted, unscripted, and animation divisions — laying off 82 staffers and opting not to fill an additional 43 vacant positions.
The media giant also shuttered its digital production arm Stage 13 and the 40-year-old Warner Bros. Television Workshop, a long-standing pioneer in fostering new and diverse talent.
The move adds to the company’s broader restructuring efforts as it looks to slash $3 billion worth of costs over the next two years and prepares to combine HBO Max with Discovery+.
The media giant reported a $3.42 billion loss in the second quarter, partly due to obstacles related to its recent merger.
Warner Bros. Discovery now expects 2022 adjusted EBITDA to come in between $9 billion and $9.5 billion, a decline from previous forecasts of $10 billion. Management also cut its full-year 2023 EBITDA guidance from $14 billion to $12 billion.
Warner Bros. Discovery stock has fallen more than 50% year-to-date, currently hovering at 52-week lows.
Alexandra is a Senior Entertainment and Food Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at [email protected]
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Source: https://finance.yahoo.com/news/warner-bros-discovery-needham-lowers-estimates-q3-earnings-175715836.html