Warner Bros. Discovery’s (NASDAQ:WBD) management will release financial results for the second quarter of the company’s 2022 fiscal year on August 4 following the market’s close.
This is a significant period since it will be the first time that WarnerMedia and Discovery will submit joint financial reports as a combined organization. Even so, it won’t quite equal a complete fiscal quarter for the two.
Nevertheless, there are a few crucial issues that investors need to pay attention to. These specific criteria will play a significant role in assessing the future upside potential, if any, of the combined company.
Here are some things to consider:
The Streaming Wars
The health of the streaming services provided by the combined firms is one of the most crucial aspects that investors should monitor. Streaming has been perceived as a chance for nearly endless expansion during the last few years.
However, with a number of competitors entering the market and the cost of streaming rising, particularly in the midst of general economic inflation and hardship, legitimate worries have been raised concerning the market’s smaller players.
Despite their size, HBO and HBO Max, which are part of the WarnerMedia group, are unquestionably seen as second-tier streaming services.
Discovery+, in contrast, is even more modest in size.
Warner Bros. Discovery (NASDAQ:WBD) is most definitely not a contender for leadership over the space when compared to market leader Netflix (NASDAQ:NFLX), which has seen a decline in subscriber numbers over the past two quarters, and industry darling The Walt Disney Company (NYSE:DIS), which has Disney+, ESPN+, and Hulu under its belt.
A firm like Warner Bros. Discovery (NASDAQ:WBD) is undoubtedly more exposed if streaming-related issues start to emerge that go beyond what we have already seen with Netflix.
Investors should therefore pay close attention to the data that the corporation discloses in its announcement of second-quarter earnings.
Opening Up Streaming
Keep in mind that the HBO and HBO Max platform performed admirably in the last quarter when WarnerMedia belonged to telecom behemoth AT&T (NYSE:T). The corporation had 76.8 million subscribers at the end of the most recent quarter, 48.6 million of whom were in the domestic market.
These figures contrasted with the respective 73.8 million and 46.8 million reported just one quarter before. The 61 million and 41 million reported for the first quarter of 2021, respectively, are also favorable comparisons. The success of this area will go a long way toward disproving the critics of Warner Bros. Discovery (NASDAQ:WBD).
Of course, discovery+ deserves our attention as well. In the past, the management team at Warner Bros. Discovery hasn’t made a lot of noise about subscriber counts.
However, they did mention that the site had 24 million paid subscribers in the first quarter of the year. The 22 million stated for the end of its fiscal year in 2021 had increased to this amount.
In connection with this, we should be aware of the risk that management would attempt to combine HBO Max with discovery+.
Hitting the Targets
Beware of the targets of Warner Bros. Discovery (NASDAQ:WBD). Large business transactions that entail the purchase, merger, or sale of another large company can be complicated and cause a great deal of uncertainty for shareholders.
However, what is now known is that management has great expectations for the united business. Warner Bros. Discovery’s initial goal is to save at least $3 billion in costs annually over the following three years.
Just a short while after CNN+ was introduced, the firm did declare its closure, which was likely the first shot in this direction.
To what extent the corporation may already be making progress and whether or not guidance on that front has altered, it will be interesting and crucial to monitor.
The consolidation of redundant positions inside the merged organization, such as corporate functions and content generation, will account for the majority of the first savings. Beyond that, however, it’s uncertain what to anticipate.
Expectations for the top line and bottom line should also be taken into consideration.
According to pro forma figures for the 2020 fiscal year, the combined company would have generated $39 billion in revenue and $12 billion in EBITDA.
Management stated in its initial presentation to shareholders contemplating the WarnerMedia and Discovery combination that they were aiming for sales of $52 billion and EBITDA of $14 billion in 2023. In contrast, the amounts in 2021 were $45.5 billion and around $10.9 billion, respectively.
The bottom line is Warner Bros. Discovery (NASDAQ:WBD) appears to be in an intriguing situation right now. There is danger associated because the market has an overall negative perception of the company.
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