Warner Bros. Discovery shares fall after weak forecast

Warner Bros. Shares in Discovery fell on Friday after the media and entertainment giant reported disappointing results and lowered earnings forecasts for the newly combined company.

The New York-based company’s stock fell $2.73, or 16%, to $14.74 a share after Wall Street gave a chilly response to the company’s second-quarter results in the first full earnings report since the WarnerMedia assets were merged with Discovery Inc. for $43. – billion trade.

Warner Bros. A spokesperson for Discovery declined to comment.

The deal closed in April, bringing AT&T’s WarnerMedia brands, including HBO, CNN and Warner Bros. film and TV studio, management ended.

Warner Bros. Discovery, led by CEO David Zaslav, on Thursday reported revenue was $9.83 billionmissed analysts’ estimates. Wall Street had expected sales of $11.8 billion, according to FactSet data. On a pro forma level, the turnover decreased by 3% of the combined turnover of the two companies in the same quarter last year.

The media giant reported a loss of $3.42 billion, or $1.50 per share, which also fell short of expectations. The loss included $1 billion in restructuring charges and $983 million in costs related to the transaction and the integration of the companies.

In addition, the company revised down its full-year estimates, citing what the company calls a “year of transition” as it figures out the combined company’s strategy to absorb Netflix and Disney while maintaining its business.

The company expects adjusted earnings of $9 billion to $9.5 billion in 2022. Looking ahead to 2023, the company cut its full-year earnings guidance from $14 billion to “at least $12 billion.”

The changes come as the media and entertainment industry grapples with the challenges of the streaming business, which includes high upfront costs and the expected impact of the recession on businesses, including TV advertising and consumer spending.

“We are not surprised by management’s downgrade guidance and believe the decision to reset expectations is prudent as the media and financial backdrop has changed since the deal was first announced 15 months ago,” JP Morgan analyst Philip Cusick wrote in a note to clients.

Warner Bros. Discovery executives also planned to merge HBO Max and Discovery+ into a single streaming service that would debut in the US next summer. The company said it aims to have 130 million global streaming subscribers by 2025 and that its direct-to-consumer business will be profitable by 2024.

At the same time, the company is Against Hollywood talent after it decided to shelve the mostly completed Batgirl movie, which cost $90 million to produce. The industry is also bracing for significant layoffs as Zaslav looks set to embark on a plan to save $3 billion in merger costs.

The report was mixed for Wall Street analysts, with several noting that the rollout of the unified streaming service will take longer than expected and may not provide as much of a return as investors would like.

Cowen & Co. analyst Doug Creutz wrote to clients that he had “expected management to provide clear answers to two questions: first, what are the company’s plans to combine HBO Max and Discovery+ services, and second, are there any changes to the company’s operations [2023] financial guidance”, which was given for the first time last year.

“While the answers may not have been all that we hoped for, especially for the second question, management’s presentation was thoughtful and clearly explained,” Creutz said.

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