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Technology Stocks : Warner Bros. Discovery
WBD 7.805+5.2%12:26 PM EDT

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From: Jon Koplik2/24/2023 10:28:01 PM
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WSJ -- Warner Bros. Finds One Cash Flow Story to Rule Them All ...........................................

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Feb. 24, 2023

Warner Bros. Finds One Cash Flow Story to Rule Them All

Media giant focuses on debt reduction amid advertising and streaming weakness -- and has a brighter year ahead



A scene from HBO’s ‘The Last of Us.’

By Dan Gallagher

Warner Bros. Discovery WBD at least knows who its fans are -- and how to play to them.

The media giant created from the ashes of AT&T’s ill-fated foray into Hollywood didn’t have a great fourth quarter. Results for the period reported late Thursday showed sharp declines in revenue from both advertising and content. That brought overall revenue for the period down 11% year over year to $11 billion, which also fell short of Wall Street’s estimates. The company saw little action in theaters during the quarter beyond the superhero flick “Black Adam,” which lagged behind expectations. And it didn’t exactly warm up the crowd at home either, adding only 1.1 million subscribers to its digital streaming services that include HBO Max.

The last point made Warner the weakest of its major streaming peers during the year-end quarter. Netflix added 7.7 million to its much larger and more mature subscriber base during the period, while media peers Paramount Global and Peacock-owner Comcast added 9.9 million and more than 5 million net new subscribers, respectively. Disney reported a drop of 2.4 million subscribers for its Disney+ service, but that was entirely due to declines in its Hotstar venture in India; core domestic and international subscribers to Disney+ grew by 1.4 million during the December quarter.

But Warner’s streaming results were also on brand for a company that was an early voice in calling for the end of the era where streamers chased subscribers at any cost. Discipline is necessary for a legacy media player shouldering nearly $50 billion in gross debt. But Warner is making progress on that front, and its cash management was a bright spot in the fourth quarter. Free cash flow of $2.5 billion came in 30% above Wall Street’s targets. That cheered the many analysts who are positive on the stock as a deleveraging story; twice as many have “buy” ratings on Warner as on Paramount. Credit Suisse analyst Doug Mitchelson called Warner “by far the most mispriced equity in our media coverage,” in a note to clients on Friday.

Such support helped Warner’s stock pick up some gains Friday morning following a weak opening. And the company has a brighter year ahead, with a more robust slate of theatrical movies in the pipeline. Even the first quarter is shaping up strong, with the hit new series “The Last of Us” garnering strong viewership on HBO, and the “Hogwarts Legacy” videogame from the “Harry Potter” franchise proving a surprise hit, having sold more than $850 million worth since its release earlier this month. The company also announced Thursday that it just signed a deal to make “multiple Lord of the Rings movies,” though no release dates were shared. If all goes well, a lot more of its debt will have disappeared by then.

Write to Dan Gallagher at dan.gallagher@wsj.com

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