Warner Bros. Discovery stumbled in the third quarter, falling short of Wall Street expectations due to a slowdown in merger-related advertising and restructuring costs.
Total revenue was $9.823 million and net losses were $2.8 billion, including $1.9 billion of pre-tax amortization of acquisition-related intangibles and 1 $.5 billion in restructuring charges. Free cash flow was negative $192 million from positive $705 million in the prior year quarter.
The company reported 94.9 million direct-to-consumer subscribers, across HBO and Discovery+ and HBO Max streaming services, an increase of 2.8 million over the previous quarter. The company did not break out individual numbers for each streaming outlet.
Consensus analyst estimates called for revenue of $10.36 billion and a net loss per share of 21 cents.
In the earnings release, the company said its merger-related cost savings target would increase from $3 billion to $3.5 billion. The company laid off a considerable number of workers and also consolidated functions in several divisions. “While we still have a lot of work to do and some tough decisions to make, we are completely confident in the opportunity ahead,” CEO David Zaslav said in the statement.
As the WarnerMedia and Discovery merger closed last April, comparisons to the prior year quarter have been reported on a pro forma basis. Like many peers in a media industry battered by currency turbulence and a host of macroeconomic challenges, WBD entered today’s earnings report with low expectations on Wall Street. The company is in the midst of a major restructuring, and while several billion dollars in savings will eventually be realized (much more than the $1.5 billion target proposed by AT&T when it swallowed Time Warner in 2018), in the shorter term, there will be charges levied over several quarters due to the overhaul. The company is also struggling to reduce its heavy debt load of more than $47 billion and deal with pay-TV losses from cord cutting and widespread uncertainty in advertising.
In the networks division, ad revenue fell 14% (or 11% when foreign currency fluctuations are taken into account) to $1.9 billion. Unlike other media owners, WBD does not own a broadcast network or local stations, which tend to be the main recipients of political ad spending. The drop was in line with expectations, both from the company and from Wall Street.
Distribution revenues decreased 5% (or 2% without currency effects) to $2.9 billion. Gains from higher U.S. affiliate pricing and Latin American premium sports packages were more than offset by lower U.S. pay-TV subscribers and lower pay-TV pricing. affiliation in some European countries.
markets, the company said.
The studio division saw an 8% drop in total revenue to around $3.09 billion, but adjusted EBITDA jumped 37% to $762 million.
The DTC unit posted negative EBITDA of $634 million, reflecting ongoing investments in HBO Max and Discovery+, which launched in 2020 and 2021, respectively. (They are to be combined into a single offering in 2023, and the launch date is pushed back to spring from a previous summer window, Zaslav announced.)
Shares of WBD had a volatile day, dropping as low as $11.64 this morning before recovering a bit but still closing nearly 6% lower at $11.97 on trading volume above the average. The stock has fallen sharply since the merger of WarnerMedia and Discovery closed last April, dropping almost 50%. The bears say the merged company is overloaded with declining assets like cable television networks and the flagship movie studio. The bulls, on the other hand, see a powerful IP warehouse with a promising streaming release in HBO Max, with bonus points for a cost-conscious management team with a new strategic plan for DC as it seeks to close the gap with Marvel.
In addition to financial complications, both in the industry and in the wider economy, the supply of new content was uneven during the quarter. While the quarter saw the highly successful premiere of HBO’s game of thrones prequel Dragon House, the July-September setting was particularly sleepy for Warner Bros. Pictures. The only release over the summer was the animated family title DC League of Super Petswhich made over $200 million at the global box office, but isn’t the same kind of mega-tentpole as The Batman Where black adamother 2022 releases released at other times this year. don’t worry darling came out just before the end of the September 30 quarter, contributing a little to revenue but mostly appearing to be a drag on bottom line due to marketing and distribution costs.