Warner Bros. Discovery (WBD) is a top media company that owns some of the top iconic brands in the United States. It owns linear television networks like CNN, OWN, Cooking Channel, and Cartoon Network.
The company also owns Max, the leading streaming company, HBO, Discovery, and Discovery+. Additionally, it is one of the biggest players in Hollywood, thanks to its Warner Studios, the creator of popular movies like Dune, Godzilla x Kong, and Horizon.Â
Warner Bros. Discovery was formed after the merger of Warner Bros, a company then owned by AT&T and Discovery. At the time of its merger, it had a market cap of almost $50 billion, a figure that has dropped to $19.1 billion.Â
WBD has struggled because of its linear television division, which has suffered from the ongoing cord-cutting among customers and a weak ad market. It has also made substantial losses in the past few years and has almost $40 billion in debt.
Warner Bros. Discovery has been in the spotlight after losing a coveted NBA deal to Amazon, a move it has sued.Â
The WBD stock was trading at $8 in the pre-market while its HypeIndex figure rose by 87%.Â
Positive hype
Warner Bros. Discovery has attracted positive hype for several reasons:
The main catalyst for the WBD stock has been rumors that the company is evaluating strategic options, including selling assets or splitting is Max and Studio business from its legacy business.
A separation would be a good thing because its sum of parts seem to be more valuable than the whole company. I believe that Its studio business and Max have a higher valuation than the whole company. However, it would also attract the ire of its bondholders.
Warner Bros. Discovery stock is also attracting positive hype because of the success of Dune: Part 2, which has made over $700 million in global sales. Godzilla x Kong also had strong sales earlier this year.Â
Analysts at Morgan Stanley believe that the loss of its NBA rights will have some impact on sales. However, they believe the company will save $20 billion of fixed cash obligations in the next decade.Â
Warner Bros. Discovery seems to be an undervalued company, especially when you consider its sum of parts in a hypothetical breakup.Â
For example, its direct-to-consumer business has over 99.6 million users while Netflix has over 277 million. Netflix has a market cap of $256 billion. Therefore, all factors constant, it means that MAX would be $99.6 billion. Even if MAX valuation is slashed by half because of its debt and Netflix’s premium, it means that the current $19 billion valuation of the whole company is small.
Negative hype
Warner Bros. Discovery has also attracted several negative hypes recently.
The biggest negative hype is the loss of the NBA rights to Amazon, which has led to several downgrades. Morgan Stanley reduced its price target from $10 to $9 while Macquarie lowered its view to neutral.Â
Macquarie argued that losing NBA could lead to a loss of subscribers in its Max service. It slashed its target from $13 to $9.Â
The other negative hype is that WBD will publish its earnings on Wednesday and analysts expect that its revenue will be $10 billion, down by 3.5% from the same period in 2023. WBD has missed analysts' estimates in the last four consecutive quarters.Â
Summary on Warner Bros. Discovery
Warner Bros. Discovery stock has dropped sharply in the past few years. It has dropped from over $78 in 2021 to $7.85 as the company has faced numerous headwinds, including its huge debt burden, competition, losing NBA rights, and the slowdown in the ad market.
Technically, the stock has formed a falling wedge pattern on the weekly chart, meaning that it could bounce back soon. A rebound could happen as soon as on Wednesday when it publishes its financial results.
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