Warner Bros. Discovery reports a $148 million loss as sale process heats up
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- Warner Bros. Discovery reported a $148-million loss in the third quarter, missing analyst expectations as advertising revenue plummeted 16%.
- The board rejected Paramount’s $58-billion bid and opened the company to other possible bidders including Amazon, Netflix and Comcast.
- The studio remains bullish on its future, citing box office hits like ‘Superman’ that helped Warner reach $4 billion in revenue.
Warner Bros. Discovery reported a $148-million loss in the third quarter, hitting a sour note as the company began fielding interest from would-be buyers as Hollywood braces for a transforming deal.
Earnings for the entertainment company that includes HBO, CNN and the Warner Bros. film and TV studios fell short of analysts’ expectations. A year ago, the company reported profit of $135 million for the third quarter.
Revenue of $9.05 billion declined 6% from the year-earlier period. The company swung to a loss of 6 cents a share, compared with last year’s earnings of 5 cents a share.
Still, Chief Executive David Zaslav spent much of Thursday’s call with analysts touting his company’s underlying strengths — while avoiding giving details about the company’s sale.
“It’s fair to say that we have an active process underway,” Zaslav said.
Warner Bros. Discovery on Thursday reiterated that it is forging ahead with previously announced plans to split into two separate entities by the spring. However, the Warner board acknowledged last month that it was also entertaining offers for the entire company — or its parts — after David Ellison’s Paramount expressed its interest with formal bids.
Paramount has made three offers, including $58 billion in cash and stock for all of Warner Bros. Discovery. That bid would pay Warner stockholders $23.50 a share.
The Ellison family appears determined to win one of Hollywood’s most storied entertainment companies to pair with Paramount, which the Ellisons and RedBird Capital Partners acquired in August.
But Warner Bros. Discovery’s board, including Zaslav, voted unanimously to reject Paramount’s offers and instead opened the auction to other bidders, which is expected to lead to the firm changing hands for the third time in a decade.
Board members are betting that the company, which has shown flickers of a turnaround, is worth more than Paramount’s offers on the table. Warner’s shares slipped 1.5% to $22.42 on Thursday.
“Overall we are very bullish,” Zaslav said of the company’s business prospects.
“When you look at our films like ‘Superman,’ ‘Weapons’ and ‘One Battle After Another,’ the global reach of HBO Max and the diversity of our network’s offerings, we’ve managed to bring the best, most treasured traditions of Warner Bros. forward into a new era of entertainment and [a] new media landscape,” he said.
After hustling for decades to get to the big stage, Zaslav is eager to prove critics wrong and complete a turnaround after three painful years of setbacks and cost cuts to reduce the company’s mountain of debt.
But the company’s results underscored its business challenges.
Warner Bros. Discovery witnessed a major decline in advertising revenue in the third quarter, reporting $1.41 billion, down 16% from the previous year, which executives attributed to declines in the audience for its domestic linear channels, including CNN, TNT and TLC.
Distribution revenue for the networks also took a hit, as the company reported sales of $4.7 billion, a decrease of 4% compared with a year earlier.
Studio revenue increased 24% to $3.3 billion, powered by the success of DC Studios’ “Superman,” horror flick “Weapons” and the latest installment of “The Conjuring.” But even those box-office wins couldn’t totally offset shortfalls in other areas of its content business.
Last year, the company was able to sublicense its rights to broadcast the Olympics in Europe, which pushed content revenue to $2.72 billion. But this year, revenue was down 3% to $2.65 billion.
Burbank-based Warner Bros. has had a string of successes in theaters, with nine films opening at the top spot globally at the box office. The studio recently surpassed $4 billion in worldwide box-office revenue, making it the first studio to do so this year.
Warner Bros. last achieved that milestone in 2019.
The Wall Street Journal reported Thursday that the Ellison-backed Paramount was preparing a largely cash bid for Warner Bros., which owns CNN, HBO and the fabled movie and TV studio.
Zaslav would like to continue with Warner’s breakup plans, which were announced last June.
The move would allow him to stay on to manage a smaller Hollywood-focused entity made up of the Warner Bros. studios, HBO, streaming service HBO Max and the company’s vast library, which includes “Harry Potter” movies and award-winning television shows such as “The Pitt.”
The company’s large portfolio of cable channels, including HGTV, Food Network and Cartoon Network, would become Discovery Global and operate independently.
Beyond Paramount, Philadelphia-based Comcast, Netflix and Amazon have expressed interest in considering buying parts of the company.
Warner Bros. Discovery said its third-quarter loss was the result of a $1.3-billion expense, including restructuring costs.
TD Cowen media analyst Doug Creutz noted the stronger results at the film studio and HBO Max streamer, which added 2.3 million subscribers in the quarter to reach 128 million worldwide. Creutz’s firm has a “hold” on Warner’s stock, but raised its target to $22 a share.
“Our new price target assumes an 80% probability WBD is acquired at an assumed price of $25, and a 20% probability that no deal happens,” Creutz wrote in a note to investors.
MoffettNathanson analyst Robert Fishman added in a separate report to investors: “Now that [third-quarter] results are behind us without major surprises, we would expect more chatter about possible bids to heat up in the weeks ahead.”
