Warner Bros. Discovery (WBD) reported Q4 earnings results that missed across the board on Thursday — but one analyst said the company’s strategic plan mirrors another familiar media giant: Disney’s (DIS).
“The strategic position outlined by WBD’s CEO last night mirrors DIS’s diversified rev streams, focus on franchise-based films, multiple DTC apps, margin expansion upside, etc,” Needham analyst Laura Martin wrote in a new client note published on Friday.
“WBD’s 2 key advantages as we see it are: a) deeper cost-cutting owing to AT&T’s prior ownership; and b) WBD owns video games, not Parks, which have higher ROICs and target younger consumers. DIS is valued well above WBD, suggesting multiple expansion if WBD’s execution is successful,” she continued.
Zaslav emphasized on the earnings call the company’s IP will be a clear driver in its success, announcing a new production deal for multiple “Lord of the Rings” movies, as well as a continued focus on its revamp of the DC Universe and upcoming streaming initiatives (a press event scheduled for April 12 will reveal more details regarding the HBO Max/Discovery+ relaunch.)
On the gaming side, Zaslav said video games are “core” to its strategy after Hogwarts Legacy sold more than 12 million units to hit $850 million in revenue in its first two weeks since launch: “As the only studio scaled in gaming, we see it as a meaningful differentiator and a substantial opportunity.”
Martin, who maintained her Hold rating on the stock with a price target of $15.73 a share, said Zaslav “is repositioning WBD as a ‘storytelling’ company- similar to DIS,” adding his commitment to free cash flow and capital allocation will further fuel valuation upside.
Shares, which initially fell as much as 4% following the release, traded relatively flat on Friday as investors digested positive analyst commentary, along with Zaslav’s optimistic tone.
Tough decisions ‘starting to make economic sense’
Warner Bros. Discovery added just 1.1 million paying users in the fourth quarter despite HBO Max returning to Amazon Prime Video Channels (AMZN), in addition to the debuts of popular original series like “The Last of Us,” “The White Lotus,” and “House of the Dragon.”
That number missed consensus estimates, although losses in the direct-to-consumer division came in at $217 million — a $511 million improvement over last year.
The embattled media giant also announced it will be adjusting its $3.5 billion cost-saving synergy targets to $4 billion over the next two years, which will include $2 billion in savings this year. That will be accompanied by restructuring charges of $5.3 billion.
“This promises to be a very exciting year for our company,” Zaslav told investors. “The bulk of our restructuring is behind us…we are one company now.”
Macquire analyst Tim Nollen agreed the company is “turning a corner” in a new note published on Friday: “The big picture takeaway from WBD’s Q4 report is that the heavy lifting on last year’s merger integration is done, and while macro headwinds are still blowing, the tough decisions taken are starting to make economic sense.”
Nollen maintined his Outperform rating on the stock, but raised his price target by 10% to $22 a share.
Guggenheim analyst Michael Morris added he sees greater streaming upside ahead of the HBO Max/Discovery+ relaunch: “We see investor confidence in an incrementally compelling streaming offering as key to further share appreciation.”
“We see potential to further leverage marque general entertainment for both growth and efficiency as undervalued at the current share price.”
Similarly, Morris also maintained his Buy rating, raising his price target to $18 a share — up from the previous $16.50.
Alexandra is a Senior Entertainment and Media Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at alexandra.canal@yahoofinance.com
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