Warner Bros. Discovery (NASDAQ:WBD)

Intro

There is not much of an introduction needed for Warner Bros. since probably everybody is familiar with the name. Warner Bros. Discovery is an entertainment company which creates as well as distributes content on TV, film or streaming. The portfolio consists, amongst others, of Discovery Channel, CNN, HBO or Warner Bros. Pictures.

Recently, however, there was a big change in the company: In 2021, Discovery acquired WarnerMedia from AT&T and combined Warner with Discovery. Former AT&T shareholders ended up with around 71% of the new Warner Bros. Discovery company.

Since trading of the new Warner Bros. Discovery started in spring 2022, the stock price mainly knew one direction: down. As a result, in a bit less than a year, the stock lost around 60% of its value. One reason might be the lack of a dividend payment, which former AT&T shareholders may not appreciate and made them sell their shares.

 

Valuation

Due to the merger, there is currently some uncertainty regarding the sustainable figures of WBD. In their latest quarterly report, the company indicates adjusted EBITDA of ~$9.2 billion and $12 billion for 2022 and 2023, respectively. The enterprise value (EV) stands at the moment at around $71 billion ($23 billion market cap plus $48 billion net debt), which equals to an EV/EBITDA of approx. 7.7x and 5.9x for 2022 and 2023, respectively. Compared to peers, the valuation seems undemanding.

Although debt levels are elevated at the moment, WBD is working to reduce leverage over the next years.

 

What’s next?

WBD needs time to implement changes, for example in terms of its cost structure, coming from the merger. This will take some time – time that, apparently, many shareholders don’t have. If successful, the firm should trade significantly higher than today and generate a decent amount of cash.

Additionally, WBD’s streaming platform (DTC segment) is still losing money. With further scale and subscribers, WBD will be in a position to show the world one of the biggest (if not the biggest) content library which presents an offering for every taste and age.

 

Current Price

$9.48 per share

 

Disclosure

As with most shares discussed on here, the author is long WBD.