Warner Bros. Discovery Narrows Q1 Net Loss 10% to $966 Million, But Studio Profit Drops 70%
Shares of Warner Bros. Discovery fell as much as 6.5% in pre-market trading on Thursday after missing Wall Street expectations for its first quarter of 2024.
The company narrowed its net loss 10% year over year to $966 million, though its results were weighed down by a 70% year over year drop in profits in its studios division and 8% year over year decline in profits in its networks segment.
Here are the top-line results:
Net loss: $966 million, a 10% year over year improvement compared to a loss of $1.07 billion in the year ago-period.
Earnings Per Share: a loss of 40 cents per share, compared to a loss of 24 cents per share expected by analysts surveyed by Zacks Investment Research
Revenue: $9.96 billion, down 7% year over year, compared to $10.29 billion expected by analysts surveyed by Zacks Investment Research
Adjusted EBITDA: $2.1 billion, down 19% year over year.
Subscribers: Added 2 million subscribers for a total of 99.6 million globally.
“The current media landscape is increasingly dynamic and in response, we’ve had to make some tough and at times unpopular decisions, but we are doing what we believe is necessary to best position the company for the future,” Warner Bros. Discovery CEO David Zaslav told analysts on Thursday. “While transformation success is not easily measured in short term months, or even quarters, we’re very confident in the strength of our assets. We believe we will see both strategic and financial progress in the quarters ahead.”
Streaming Profit Grows But DTC Revenue Remains Flat
WBD’s direct-to-consumer division, which includes traditional HBO cable subscriptions and the Max and Discovery+ streaming services, reported a profit of $86 million, up 72% year over year. Revenue for the DTC segment was flat at $2.46 billion. The company reported 52.7 million subscribers in the U.S. and Canada and 46.9 million internationally.
Distribution revenue grew 1% year over year to $2.19 billion, primarily driven by the prior year price increases in the U.S. and Latin America, and International subscriber growth, partially offset by lower subscribers in the U.S. largely resulting from continued linear wholesale subscriber declines.
Advertising revenue climbed 70% year over year to $175 million, primarily driven by higher engagement on Max in the U.S., which in part was due to the launch of B/R Sports on Max in October and ad-lite subscriber growth. Content revenue fell 46% year over year to $99 million, primarily driven by lower volume of third-party international licensing deals. Average revenue per user came in at $11.72 domestically, $3.75 internationally and $7.83 globally.
On Wednesday, Disney and WBD announced that they would offer a bundle of Disney+, Hulu and Max that will officially roll out this summer. Warner is also teaming up with Disney and Fox on a sports streaming joint venture slated to launch this fall. Additionally, Max will begin cracking down on password-sharing later this year, with a broader rollout in 2025.
“We expect this product will help increase retention and lower churn and thus support higher customer lifetime values,” Zaslav said of the offering.
Zaslav warned that U.S. subscriber growth would be impacted by some seasonality during the second quarter, particularly related to sports, but emphasized that its on track for “continued robust international growth” as it rolls out out Max to 29 countries across Europe. DTC revenue in the second quarter will be impacted by the product of timing of output deals renewed last year and the availability of content.
“Despite the heavy launch investments, I remain fully confident in our path to achieve our $1 billion+ EBIT target for 2025 and our growth ambitions thereafter,” WBD chief financial officer Gunnar Wiedenfels said.
Networks Profit Falls, Dragged Down By 11% Decline in TV Advertising
In the networks segment, total revenue fell 8% year over year to $5,13 billion, while adjusted EBITDA fell 8% year over year to $2.12 billion.
Distribution revenue fell 7% year over year to $2.79 billion, primarily driven by declines in U.S. pay-TV subscribers, partially offset by increases in U.S. contractual affiliate rates and inflationary impacts in Argentina.
TV advertising revenue tumbled 11% year over year to $1.99 billion, primarily driven by audience declines in domestic general entertainment and news networks, as well as the soft linear advertising market in the U.S. and Latin America. The decline was, in part, offset by growth in EMEA. The company’s exit from AT&T SportsNet was a modest headwind to advertising revenue and will continue to be a headwind with “marginal profit impact” for the end of the third quarter, Wiedenfels said.
Content revenue grew 8% year over year to $264 million, primarily driven by higher inter-segment content licensing to DTC.
Hollywood Strikes, Decline in Games Revenue Weighs on Studio Division
In the studios segment, revenue decreased 13% year over year to $2.82 billion, while adjusted EBITDA dropped 70% to $184 million. Distribution revenue increased 67% year over year to $5 million, advertising revenue rose 33% year over year to $4 million and content revenue fell 13% to $2.62 billion.
Games revenue declined significantly due to the success of “Hogwarts Legacy” in the prior year quarter, while the release of “Suicide Squad: Kill the Justice League” during the first quarter generated significantly lower revenues, leading to a $200 million impact to EBITDA during the quarter.
TV revenue declined meaningfully as production delays resulting from the WGA and SAG-AFTRA strikes led to fewer episodes delivered during the first quarter, as well as the timing of content availabilities and licensing deals.
Theatrical revenue increased significantly due to “Dune: Part Two,” and higher carryover from titles in the fourth quarter of 2023 titles versus the prior year. Home Entertainment revenue grew materially due to “Wonka” and “Aquaman and the Lost Kingdom.”
Warner generated $390 million in free cash flow, a $1.3 billion year over year improvement, with cash provided by operating activities increasing to $585 million. It repaid $1.1 billion of debt during the quarter and announced a $1.75 billion cash tender offer aimed at further reducing its debt.
The company ended the quarter with $3.4 billion in cash on hand, $43.2 billion in gross debt and 4.1 times net leverage.
“We now see a path to meaningfully exceed the more than $1 billion dollars of remaining cost savings that we have previously guided to, which is on top of the more than $4 billion that we already realized through the end of 2023,” Wiedenfels said.
He noted that the company sees “tangible further benefits” from consolidation of the company’s real estate facilities and a dozen global content workflow systems and noted that opportunities to utilize AI to increase productivity and business operations remains a top priority for further upside.
WBD shares have fallen 33% year to date, 41% in the past year and 68% since the 2022 merger.
The post Warner Bros. Discovery Narrows Q1 Net Loss 10% to $966 Million, But Studio Profit Drops 70% appeared first on TheWrap.