The exterior of the Warner Bros. Discovery Atlanta campus is pictured after the Writers Guild of America began its strike against the Alliance of Motion Pictures and Television Producers on May 2, 2023 in Atlanta, Georgia.
Alyssa Pointer | Reuters
Warner Bros. Discovery missed analyst targets for profit and revenue in the fourth quarter as advertising declined and the company didn’t provide free cash flow guidance for 2024.
Shares of Warner Bros. Discovery closed down 10% on Friday following the report.
The company’s fourth-quarter net loss was $400 million, or 16 cents per share, compared with a loss of $2.1 billion, or 86 cents per share, in the year-ago period. Warner Bros. Discovery reported a 14% decline in linear television advertising revenue (excluding foreign exchange movements) and a 4% decline in actual distribution revenue.
“This business is not without challenges,” Chief Executive David Zaslav said during the company’s fourth-quarter earnings call. “Among other things, we continue to face the impact of ongoing disruptions in the pay TV ecosystem and a disrupted, linear advertising ecosystem. We challenge our managers to find innovative solutions.”
Here’s what the company reported for the quarter ended Dec. 31, compared to analyst estimates, according to LSEG, formerly known as Refinitiv:
- Loss per share: 16 cents versus 7 cents expected
- revenue: $10.28 billion versus expected $10.35 billion
Adjusted EBITDA was $2.5 billion in the fourth quarter, down 5% year over year, excluding foreign exchange effects, as studios’ revenue fell due to strikes by the Writers Guild of America and the Screen Actors Guild-American Federation of Television radio artists remained behind.
Studio revenue fell 17% to $3.17 billion in the quarter. The unit’s adjusted EBITDA fell 29% to $543 million.
“The studio really underperformed, including towards the end of the year when we had real problems,” Zaslav said during the earnings call.
Free Cash Flow
Warner Bros. Discovery generated free cash flow of $3.31 billion in the fourth quarter and ended 2023 with free cash flow of $6.16 billion, an increase of 86% year over year. Zaslav has prioritized increasing free cash flow and reducing the company’s debt.
Still, the company said there will be free cash flow headwinds in 2024 as content spending increases with the end of last year’s writer and actor strikes.
Chief Financial Officer Gunnar Wiedenfels declined to provide a free cash flow forecast for 2024, but noted that the Olympics, the commitment to increase maximum revenue through higher spending and uncertainty about annual EBITDA will weigh on cash generation in this one year.
“I expect 2024 to be another year of strong free cash flow,” Wiedenfels said. “I deliberately don’t want to give any specific quantitative free cash flow forecast.”
Warner Bros. Discovery paid off $1.2 billion of debt in the quarter and $5.4 billion of debt in 2023. The company still has $44.2 billion in gross debt after paying off $12 billion in debt over the past two years.
Maximum profitable for 2023
The company’s flagship subscription streaming service, Max, ended 2023 profitable with full-year adjusted EBITDA of $103 million.
Zaslav has dramatically reduced content spending on the streaming service since the WarnerMedia-Discovery merger in 2022. His efforts have helped Max break even ahead of the streaming divisions of legacy media competitors Disney, Comcastis NBCUniversal and Paramount Global.
The company reported 97.7 million direct-to-consumer subscribers worldwide, up 2% quarter over quarter.
The company said Max would be profitable in 2024, although it would lose money in the first half of the year as the studio increased content spending before recovering in the second half. Warner Bros. Discovery forecast that Max would generate $1 billion in EBITDA in 2025.
Max’s advertising tier, currently only available in the U.S., will roll out in 40 international markets by the end of 2024, Zaslav said during the call.
Sports JV
Zaslav did not provide pricing details for the company’s upcoming sports joint venture announced earlier this month with Disney and Fox, but reiterated that the product is intended for the 60 million U.S. households that currently lack cable access .
Zaslav noted that one of the benefits of the service, which is scheduled to launch in fall 2024, is that consumers will not have to worry about choosing the right channel for playoff games from Major League Baseball, the National Hockey League or the National Basketball Association. because the streaming app automatically redirects consumers to any game on Fox, ESPN, TNT or TBS.
David Zaslav, president and chief executive officer of Warner Bros. Discovery, attends the world premiere of the 4K restored 1959 film “Rio Bravo” on the opening night of the 2023 TCM Classic Film Festival on April 13 at the TCL Chinese Theater in Hollywood , California, 2023.
Aude Guerrucci | AFP | Getty Images
“We don’t see a lot of people opting out of cable TV to get this,” Zaslav said. “The younger generation that doesn’t sign up, we can go after those we’re missing.”
Warner Bros. Discovery continues to negotiate with the NBA to renew media rights, but will not overpay based on the company’s internal estimates of the league’s value, Wiedenfels said.
“It is very easy to lose control of investing in sports rights,” Wiedenfels said. “We don’t do it that way. We know exactly what value we place and remain disciplined in our conversations.”
Disclosure: NBCUniversal is the parent company of CNBC.
Don’t miss these stories from CNBC PRO:
Source link
2024-02-23 20:57:00
www.cnbc.com
