Warner Bros. Discovery’s $217 million streaming loss? A good thing

When Wall Street expects to lose half a billion dollars on streaming, it can feast on those numbers.

No streamer wants to lose hundreds of millions of dollars — and no company wants to shed billions — in a single quarter, but for Warner Bros. Discovery, the results may not be as bad as they seem.

Warner Bros. Discovery Admits $2.1B Loss for Q4 2022; its direct-to-consumer (DTC) business lost $217 million, or about 10 percent of its total loss, in the same months. At first glance, both are glaring — but they represent a significant improvement over previous quarters, and DTC’s loss is much better than Wall Street expected.

Let’s work big small: The lion’s share of the total corporate loss was attributable to the amortization of an additional three months of merger and restructuring costs related to the April 2022 combination of WarnerMedia and Discovery, Inc. The direct-to-consumer loss in the fourth quarter was less than half of what analysts had expected and about a third of the streaming loss in the previous quarter.

According to the market consensus, direct-to-consumer (HBO Max and Discovery+ streamers and linear HBO) losses totaled $534 million. Equity analysts at Wells Fargo bank, who had forecast a DTC loss of $580 million, called the $217 million loss a “significant improvement” and a “clear highlight” of Warner Bros. Discovery’s fourth-quarter financials.

Tim Nollen, chief media technology analyst at Macquarie, also chose “outperform” and raised his price target on WBD shares by 10 percent to $22. Moffett Nathanson, who thought DTC would post a loss of $402 million, called the overall story of the fourth quarter a “positive narrative” and tacked on $2 to his own price target, which is now $17 a share. (WBD shares currently trade below $16.)

Analysts at UBS, who had forecast a $476 million DTC loss, echoed the sentiment, calling the segment’s actual losses a “significant step back” from the $634 million loss in the third quarter and the “big story” in the fourth quarter. Wait until they hear about the current quarter. (Joke, you know.)

SUN VALLEY, IDAHO - JULY 05: David Zaslav, President and CEO of Warner Bros. Discovery, speaks to the media as he arrives at Sun Valley Resort for the Allen & Company Sun Valley Conference on July 5, 2022 in Sun Valley, Idaho.  The world's richest and most powerful business people from media, finance and technology are meeting at Sun Valley Resort this week for an exclusive conference.  (Photo: Kevin Dietsch/Getty Images)

David Zaslav, President and CEO of Warner Bros. Discovery

Getty Images

Warner Bros. Discovery now believes it will almost break even in terms of direct-to-consumer performance in Q1 2023. But that’s a temporary reprieve — the gap will widen again in the second quarter, when marketing costs for HBO Max/Discovery+ in the US and Latin America taper off. WBD plans to combine HBO Max and Discovery+ into one super service this April. (The company also continues the much cheaper Discovery+ as an independent platform, and plans to introduce a FAST service in the future.)

Building a profitable streaming business is the company’s number one priority, a Warner Bros. Discovery insider told IndieWire on Thursday. Officially, senior executives also list the reduction of the company’s $49.5 billion in gross debt.

From October to December, Warner Bros. Discovery added 1.1 million direct-to-consumer subscribers, and the combination of linear HBO and streaming services HBO Max and Discovery+ adds 96.1 million. This was pretty much as expected.

Warner Bros. Discovery’s overall fourth-quarter financial performance was less consistent. With a loss of 86 cents per share on revenue of about $11 billion, WarnerMedia-Discovery’s aggregate estimates fell short of the top and bottom estimates.

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