Deeply troubled media company Warner Bros. Discovery Inc. (NASDAQ: WBD) has announced a reorganization. There is no proof it will help revenue or earnings, but the stock traded 15% higher on the news. However, it is still up only 10% this year, while the S&P 500 is 28% higher. Shares of rival Walt Disney Co. (NYSE: DIS) have gained 27% over the same period.
24/7 Wall St. Key Points:
- News of a reorganization boosted Warner Bros. Discovery Inc. (NASDAQ: WBD) stock.
- The media company plans to split its cable assets from its movie studio and streaming business.
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The plan is to divide the company into two operating groups. One will have its cable assets, and the other will have its movie studio business and streaming.
Warner Bros. Discovery’s streaming services are primarily its Max and Discovery+ products. A major challenge is that the number of Max subscribers (100 million) will not catch up to market leaders Netflix (270 million) and Amazon Prime Video (200 million). According to IndieWire, Max’s churn rate, which is the rate at which people cancel annually, is 17% per year. Netflix’s rate is 2%, and Prime Video’s is 8%.
Warner Bros. Discovery’s earnings are ugly. In the most recently reported quarter, revenue dropped 4% year over year to $9.6 billion. Adjusted EBITDA, which the company says is a primary way to view its financial health, fell 19% to $2.3 billion. Revenue in its network business rose only 3% to $5 billion. This unit operates legacy cable properties. Revenue in its streaming segment increased 8% to $2.4 billion. Revenue for the studio segment fell 17% to $2.6 billion.
Warner Bros. Discovery CEO David Zaslav said the plan “better aligns our organization and enhances our flexibility with potential future strategic opportunities across an evolving media landscape.” He did not give much analysis to support his statement. “Future opportunities” was a signal to investors of M&A.
The plan is similar to “moving deck chairs on the Titanic.” There is no reason to think it will make Warner Bros. Discovery more successful.
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