Warner Bros. Discovery (NASDAQ:WBD) reported a disappointing second-quarter earnings report on Wednesday, missing both revenue and profit expectations and absorbing a massive $9.1 billion impairment charge related to its TV networks unit. Including an additional $2.1 billion in merger-related costs, the company took an $11.2 billion hit last quarter.
WBD CEO David Zaslav noted on the earnings call that market valuations and conditions for legacy media companies were significantly different two years ago compared to now. He added that the impairment reflects this change and aligns carrying values more closely with the company’s future outlook.
CFO Gunnar Wiedenfels pointed out that the impairment was caused by multiple factors: the gap between the company’s current market capitalization and book value, persistent weakness in the U.S. advertising market, and uncertainties regarding affiliate and sports rights renewals, including the NBA. He acknowledged the significance of the impairment but emphasized that it also highlights the shifting value across business models and reflects confidence in growth and value opportunities within their studios and global direct-to-consumer business.
WBD stock fell approximately 9% in after-hours trading as investors reacted to the results.
The company’s revenue for the quarter was $9.7 billion, missing Bloomberg’s consensus estimate of $10.12 billion and reflecting a 6% decline from last year’s $10.36 billion. An adjusted loss per share came in at $4.07, a stark contrast to the $0.51 loss reported in the same period last year and falling short of the consensus estimate of $0.21 due to the impairment charge.
Free cash flow, previously a strong performer, fell 43% year-over-year to $976 million, missing Bloomberg’s expectations of $1.2 billion.
Despite the broader struggles, the company’s direct-to-consumer (DTC) streaming business showed some positive signs, adding 3.6 million Max subscribers thanks to the debut of “House of the Dragon” Season 2. This exceeded Bloomberg’s expectation of 1.89 million additions and the 1.80 million added in Q2 2023. Streaming advertising revenue surged to $240 million, surpassing Bloomberg’s estimate of $191 million and up 98% from the $121 million reported a year ago. However, the DTC division posted a $107 million loss after reporting a profit in the first quarter.
The loss of NBA media rights, a key issue for WBD, has raised concerns about the future success of its streaming service Max and the potential acceleration of decline for its linear networks. The NBA opted for deals with Amazon (NASDAQ:AMZN) and Comcast’s NBCUniversal (NASDAQ:CMCSA) instead, while renewing its rights with Disney (DIS). Network advertising revenue fell 10% year-over-year to $2.21 billion, missing Bloomberg’s expectation of $2.26 billion, putting pressure on second-quarter EBITDA.
Analysts are speculating about potential strategic moves for the company, including a possible separation of its digital streaming and studio businesses from its traditional linear TV operations.
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Author Faith Yakubu 
