Warner Bros. Discovery Faces Challenges Despite Streaming Growth

Warner Bros. Discovery's stock has decreased by 5% year-to-date, trailing sector growth. Recent streaming subscriber increases and content success are positive, but issues in the linear networks business and high debt remain significant concerns for investors.

Date: 31-05-2025

AI Rating: 5

Current Stock Performance and Market Context
Warner Bros. Discovery (WBD) shares are down 5% year-to-date, well below the 25.1% rise of the Consumer Discretionary sector and the mixed performance of entertainment competitors, such as Disney (DIS), Paramount Global (PARA), and Netflix (NFLX). This underperformance prompts concerns over the company's transformation amidst a difficult media landscape, although operational improvements were noted in Q1 2025.

Streaming Performance Insights
The company's streaming segment shows promise, adding 5.3 million subscribers in Q1 2025 for a total of 122.3 million globally. This segment reported $339 million in adjusted EBITDA, positioning WBD on track to achieve at least $1.3 billion in streaming EBITDA for 2025. Hits like "The White Lotus" and "The Last of Us" bolster audience engagement, offering potential for higher revenue from the streaming platform.

Operational Aspects
WBD’s studios segment performed strongly, with a 63% year-over-year increase in adjusted EBITDA to $259 million, aided by successful releases like the Minecraft Movie. However, the Global Linear Networks segment continues to struggle as revenues fell by 6% due to ongoing cord-cutting trends and a challenging advertising environment.

Financial Health and Prospects
The company maintained a net leverage ratio of 3.8x, repaying $2.2 billion in debt in Q1 while holding $4.0 billion in cash. The reported free cash flow of $302 million indicates an improvement. However, high gross debt of $38 billion raises investor concerns. The Zacks Consensus Estimate anticipates a revenue decline of 3.88% year-over-year for 2025 to $37.8 billion, alongside an expectation for a loss of 16 cents per share, significantly less than the preceding year's loss. This suggests pressures on both revenue and profitability which could affect stock prices adversely in the near-term.

Investment Outlook
WBD holds a 'Hold' rating, reflecting mixed signals. Despite the positive trends in streaming and strong content releases, ongoing challenges in linear television and high debt may deter aggressive investments. Investors are advised to monitor progress in achieving sustainable streaming profitability and debt reduction before making significant investments.

Stocks: WBD DIS PARA NFLX