Warner Bros. Discovery shares fell on Friday after the media and entertainment giant reported disappointing earnings and lowered earnings guidance for the recently merged company.
Shares of the New York-based company fell $2.73, or 16%, to $14.74 a share as Wall Street traded at $43 in the first full earnings report since WarnerMedia assets merged with Discovery Inc gave a cool reaction to the second-quarter results -billion deal.
A spokesman for Warner Bros. Discovery declined to comment.
The transaction closed in April and ended AT&T’s responsibility for WarnerMedia brands, including HBO, CNN and the Warner Bros. film and television studio.
Warner Bros. Discovery, led by Chief Executive David Zaslav, reported revenue of $9.83 billion Thursday, falling short of analyst estimates. According to FactSet data, Wall Street had expected sales of $11.8 billion. On a pro forma basis, revenue decreased 3% compared to the two companies’ combined revenue in the year-ago quarter.
The media giant reported a loss of $3.42 billion, or a loss of $1.50 per share, which also missed expectations. The loss included $1 billion in restructuring charges and $983 million in expenses related to the transaction and integration of the companies.
Additionally, the company has downgraded its full-year estimates, calling the company a “transition year” as it figures out the fundamentals of the combined company’s strategy of acquiring Netflix and Disney while maintaining its business.
The company expects adjusted earnings of $9 billion to $9.5 billion in 2022. Looking ahead to 2023, the company lowered its full-year earnings guidance to “at least $12 billion” from $14 billion.
The revisions come as the media and entertainment industry grapples with the challenges of the streaming business, which involves high upfront costs, and the expected impact of a recession on businesses, including television advertising and consumer spending.
“We are not surprised by management’s lowering of guidance and believe the decision to lower expectations makes sense given the changing media and economic environment since the transaction was first announced 15 months ago,” wrote JP Morgan- Analyst Philip Cusick in a note to clients.
Warner Bros. Discovery executives also laid out plans to combine HBO Max and Discovery+ into one streaming service, scheduled to launch in the United States next summer. The company said it is targeting 130 million global streaming subscribers by 2025 and its direct-to-consumer business will be profitable by 2024.
Meanwhile, the company is facing a backlash from Hollywood talent after deciding to shelve a largely completed “Batgirl” movie that cost $90 million to produce. The industry is also bracing for significant layoffs as Zaslav plans a plan to save $3 billion in costs from the merger.
For Wall Street analysts, the report was mixed, with several noting that the launch of the combined streaming service is taking longer than expected and may not deliver the returns investors would like.
Cowen & Co. analyst Doug Creutz wrote to clients that he “expected management to provide clear answers to two questions: first, what are the company’s plans to merge the HBO Max and Discovery+ services, and second, are there any changes to the company’s plans?  financial guidelines”, which were first given last year.
“Although the answers may not have been what we had hoped for, particularly on the second question, management’s presentation was thoughtful and clearly explained,” said Creutz.
https://www.latimes.com/entertainment-arts/business/story/2022-08-05/warner-bros-discovery-stock-drops-after-disappointing-forecast Warner Bros. Discovery stock drops after weak forecast