Warner Bros. Discovery (WBD) stock rose about 5% in premarket trading on Thursday after the company reported strong streaming results in the third quarter that included its largest ever quarterly subscriber growth since the launch of Max. But revenue missed expectations as the media giant struggled with a drop in its studios segment and continued declines from its linear TV business.
Revenue came in at $9.62 billion, missing Bloomberg consensus expectations of $9.81 billion and a 3% drop compared to the $9.98 billion seen in Q3 2023.
The company reported adjusted earnings per share of $0.05 versus a loss of $0.17 in the year-earlier period. Consensus expectations had anticipated a loss closer to $0.09 a share.
In the second quarter, WBD took a massive $9.1 billion impairment charge related to its TV networks unit following the loss of its key NBA media rights. The company is currently tied up in litigation after suing the NBA in July, citing the “unjustified rejection” of its matching rights proposal.
Streaming served as bright spot in the quarter with 7.2 million subscribers added, a beat compared to estimates of a 6.1 million net increase and its largest quarterly subscriber growth yet. The additions were also ahead of the 700,000 subscriber loss the company reported in the year-earlier period.
The subscriber strength comes amid the recent launch of Max in markets outside of the US, including Latin America and Europe, along with increased bundling with competitors. Key programming, like the second season of “House of the Dragon,” along with the Olympics, also helped boost the metric.
Outside of strong subscribers, the company saw a 49% year-over-year jump in streaming advertising revenue.
Separately, the division posted profits of $289 million in the quarter compared to the $111 million it reported in Q3 2023. Recent price hikes have helped aid profits. The company boosted the price of its ad-free plans on Max in June.
On the earnings call, WBD management said revenue growth, profit growth, and subscriber growth are expected to continue in the current quarter with Q3 serving as a “material inflection point.”
The company also has its upcoming sports streaming partnership with Disney (DIS) and Fox (FOXA), although a judge temporarily blocked the launch, citing antitrust concerns.
Networks segment remains in free fall
Amid streaming’s success, other pockets of the business remained under pressure.
Advertising revenue for its networks unit plummeted 13% year over year after it dropped 10% in the second quarter and 11% in Q1. Analysts polled by Bloomberg had anticipated a more modest drop of 7%.
Distribution revenue fell 7% as pressure on affiliate fees, or the fees pay TV providers pay to network owners to carry their channels, ramps up amid the loss of the NBA rights.
Deutsche Bank projected a potential hit of $560 million to total affiliate revenue in 2026 as a result.
Devin Booker #1 of the Phoenix Suns attempts to save a loose ball during the first half against the Philadelphia 76ers at Footprint Center on Nov. 4, 2024, in Phoenix, Ari. (Chris Coduto/Getty Images) ·Chris Coduto via Getty Images
But a recent carriage renewal deal with Charter Communications, which included WBD’s Max streaming service as part of the package, should help stem some of the bleeding.
“If WBD’s renewal with CHTR can be replicated in coming deals, we believe it would be a big improvement versus expectations,” Bank of America’s Jessica Reif Ehrlich said ahead of the report.
Still, it might be a tall order, as Deutsche Bank warned the company’s “upcoming batch of renewals in 2025 are with providers that haven’t necessarily shown the same proclivity to include streaming products in their video packages,” as Charter has demonstrated.
Meanwhile, the company’s studios segment saw revenue plummet 17% year over year, “primarily driven by lower box office revenue as the performance of ‘Beetlejuice Beetlejuice’ and ‘Twisters’ in the current year was more than offset by the stronger performance of ‘Barbie’ in the prior year.”
Overall, it remains an uphill battle for WBD stock, with shares down over 25% since the start of the year.
Full-year adjusted EBITDA remains at risk of falling to $9 billion, according to the latest Bloomberg estimates. That’s $5 billion below what analysts had expected at the time of its merger.
Rumors have swirled about the company’s next move. Bank of America analysts recently laid out possible strategic options that could include a split of the company’s digital streaming and studio businesses from its legacy linear TV unit.
Warner Bros. Discovery chief executive David Zaslav poses on the red carpet during the Oscars arrivals at the 96th Academy Awards in Hollywood, March 10, 2024. (REUTERS/Aude Guerrucci) ·REUTERS / Reuters
Comcast said last week that it’s exploring a similar concept and might spin off its cable networks into a separate company in order to “play offense” amid recent industry turmoil.
On the call, WBD CEO David Zaslav said the company is exploring “all things operationally and strategically” to ensure shareholder value. He also expects more consolidation as the current market “is not sustainable.”
In the meantime, the company has committed to aggressive cost cuts, which have helped boost free cash flow. This past summer, the company reportedly laid off about another 1,000 employees across multiple business sectors after it eliminated the positions of around 100 employees at its CNN network.
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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