Warner Bros. Discovery (WBD) shares fell another 14% in Friday afternoon trading after the company released third-quarter results that missed expectations across the board.
“It’s a traditional yesterday’s company trying to be a future tomorrow’s company,” Julia Alexander, director of strategy at Parrot Analytics, told Yahoo Finance Live (video above).
Alexander added that the media giant is “a three-pronged company dealing with three different issues,” which she describes as a struggling cinema industry struggling to return to pre-pandemic levels, a declining linear television business that — paired with a declining advertising market – lost revenue and subscribers and an uncertain direct-to-consumer segment hit by restructuring problems and profitability criticism.
WBD CEO David Zaslav indicated on the conference call that more changes are coming, revealing that the company has increased its merger synergy target to $3.5 billion from $3 billion to double content and options.
“We lean on [content]’ Zaslav said on the conference call, explaining that WBD has been spending more on content than ever before — addressing recent headlines about reduced production budgets, canceled projects, and the removal of several titles from the HBO Max platform. He went on to say that it “took real courage” to restructure the company as a single entity.
“We’re going to see a lot more cuts, both on the program side and on the working side,” Alexander surmised. So far, more than 1,000 jobs have been cut.
It’s an old company trying to be a future company of tomorrow… Julia Alexander, Strategy Director of Parrot Analytics at Warner Bros. Discovery
According to Parrot Analytics data, HBO Max has nearly 20% of movie demand across all major streamers amid an impressive content library that includes recent hits like The Batman and Elvis.
The story goes on
However, demand for the platform itself fell significantly last quarter, rising from 11.5% in Q2 to 10.8% in Q3, suggesting users may be looking elsewhere for at-home entertainment.
“If that demand continues to fall off HBO Max, even with hit shows like ‘House of the Dragon,’ that platform’s growth will really be slowed down,” Alexander warned, emphasizing the importance of DTC growth for concerned investors.
“White Lotus” (HBO)
What’s next after the Q3 earnings loss
Despite the record-breaking success of “House of the Dragon,” the company added just 2.8 million direct-to-consumer subscribers in the third quarter versus an expected 3.27 million. Management has set a long-term goal of 130 million paying users by 2025.
The company’s anticipated combination service, originally scheduled to launch in summer 2023, will now launch in spring 2023. Executives stressed that the media giant will “aggressively approach” an ad-supported streaming market that now includes Netflix (NFLX) and will soon include Disney (DIS).
“We anticipate a healthy shift with the launch of our combined service and expanded global footprint,” Zaslav told investors. “We’ve worked very hard on it. We can bring the service to consumers around the world and get the business running at full speed.”
Management hinted that price increases are likely to come to the platform in 2023 as well.
“By 2023, HBO Max will not have increased its price since launch, which we believe is an opportunity,” noted JB Perrette, president of the company’s streaming division.
Profitability remains a key concern for investors as confidence in streaming fundamentals dwindles. WBD reiterated its 2022 Adjusted EBITDA guidance of between $9 billion and $9.5 billion, down from a previous guidance of $10 billion.
Revenue fell 11% to $9.82 billion, while the company also reported a $2.3 billion net loss after a $3.4 billion loss in the second quarter.
Alexandra is a senior entertainment and media reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at [email protected]
Click here for the latest stock tickers from the Yahoo Finance platform
For the latest stock market news and in-depth analysis, including events moving stocks, click here
Read the latest financial and business news from Yahoo Finance
Download the Yahoo Finance app for Apple or Android
Follow Yahoo Finance on TwitterFacebook, Instagram, Flipboard, LinkedIn and YouTube