Warner Bros. Discovery (WBD) reported first-quarter results before the close on Thursday that fell short of expectations in both revenue and profit as free cash flow surged due to aggressive cost cuts, while the company’s linear TV business continued to grow was declining.
Revenue came in at $9.96 billion, falling short of Bloomberg consensus expectations of $10.27 billion – a 7% decline from $10.70 billion in the first quarter of 2023 The company reported an adjusted loss per share of $0.40, compared to a loss of $0.44 in the year-ago period.
The stock fell about 3% in premarket trading as investors digested the results.
WBD, like other legacy media companies, is struggling with an unfavorable advertising environment. Network advertising revenue fell 11% in the first quarter compared to the same period last year. The company reported network advertising revenue of $1.99 billion, missing Bloomberg expectations of $2.01 billion.
Business with the studios also struggled, despite high-profile films like “Dune 2”. The segment was hurt by games where “Suicide Squad: Kill the Justice League” underperformed, especially compared to last year’s release “Hogwarts Legacy.”
Segment revenue was $2.82 billion, down 13% year-over-year, excluding the impact of foreign exchange. This missed estimates of $3.01 billion.
Free cash flow was a bright spot in the quarter, rising to $390 million, beating Bloomberg consensus expectations of $239 million. The company reported negative free cash flow of nearly $1 billion in the year-earlier period.
The company’s direct-to-consumer (DTC) streaming business also outperformed, with 2 million new Max subscribers added in the quarter, beating Bloomberg consensus expectations of 1.25 million and also the 1.6 million new additions Subscribers in the first quarter of 2023.
Streaming advertising revenue rose to $175 million, beating Bloomberg estimates of $157 million and rising 70% from the $103 million the company reported in the year-ago period.
The DTC division was also profitable in the quarter at $86 million, up $36 million year-over-year. In February, the company said its direct-to-consumer streaming unit turned a profit and posted EBITDA of $103 million for full-year 2023, compared with a loss of about $2.1 billion in the year Full year 2022.
Despite the profitability hurdles, Wall Street analysts point to several tailwinds for the second half of the year, including WBD’s upcoming sports streaming partnership with Disney (DIS) and Fox (FOXA), as well as the recent launch of the Max streaming service in outside markets the USA, including Latin America and Europe.
And on Wednesday, WBD and Disney announced that they will offer a bundle of streaming services Disney+, Hulu and Max in the US starting this summer. Customers can sign up for the package with or without advertising on any of the three platforms.
Investors have been keeping a close eye on further developments in NBA media rights after a Wall Street Journal report said the company is at risk of losing those rights to rival NBCUniversal (CMCSA).
WBD CEO David Zaslav did not comment further on the status of ongoing discussions when he spoke at the Milken Institute’s annual conference in Beverly Hills on Monday.
“We continue to engage in constructive negotiations with the NBA,” he said. “It’s a great league. The TNT team is doing a great job. And we love the NBA.”
Separately, the company is reportedly seeking further cost cuts and further increases in streaming prices. According to Bloomberg, the cost-cutting plans could include layoffs after WBD cut 2,000 jobs last year. The company did not immediately respond to Yahoo Finance’s request for comment.
WBD was also at the center of the M&A discussions, as the two-year lock-up period following the merger has officially expired. At Milken, Zaslav avoided discussions about whether he would be interested in acquiring a company like Paramount (PARA), which is currently pursuing a takeover.
“Paramount is a great company. We have a number of great content companies. For us it is our goal [do] “The best we can do with the companies we have,” he said. “You have to look at your colleagues. You have to know what everyone is doing and learn from them, but ultimately if you do a good job with the resources you have, you will be successful.”
Alexandra Canal is a senior reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and send her an email at [email protected].
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