Warner Bros. Discovery Q2 Net Loss Widens to $9.9 Billion as Company Records $11.2 Billion in Impairment, Restructuring Charges
The media giant topped 103 million direct-to-consumer subscribers, but the DTC segment posted a $107 million loss for the quarter
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Shares of Warner Bros. Discovery fell over 9% in after-hours trading on Wednesday as the media giant’s net loss for the third quarter of 2024 widened to $9.9 billion and revenue fell 6% year over year, missing Wall Street expectations.
“This has been a busy, productive quarter, albeit against the backdrop of what continues to be tough market conditions,” WBD CEO David Zaslav told analysts on Wednesday. “Two plus years after launching our company, we are still in the midst of a long term transition marked by many notable progress points, as well as some tough challenges.”
Here are the top-line results:
Net loss: $9.99 billion, compared to a loss of $1.24 billion a year ago.
Earnings Per Share: A loss of $4.07 per share, compared to an estimated loss of 18 cents per share expected by analysts surveyed by Zacks Investment Research
Revenues: $9.7 billion, a 6% year over year decrease, compared to $10.07 billion expected by analysts surveyed by Zacks Investment Research
Adjusted EBITDA: $1.8 billion, a 16% year over year decrease.
Subscribers: Added 3.6 million subscribers for a total of 103.3 million globally
The net loss included $11.2 billion in charges during the quarter, including a $9.1 billion non-cash goodwill impairment charge from the networks segment and $2.1 billion in “pre-tax acquisition-related amortization of intangibles, content fair value step-up, and restructuring expenses.”
The goodwill impairment was triggered in response to the difference between market capitalization and book value of the networks segment, continued softness in the U.S. linear advertising market, and uncertainty related to affiliate and sports rights renewals, including the NBA.
“It’s fair to say that even two years ago, market valuations and prevailing conditions for legacy media companies were quite different than they are today, and this impairment acknowledges this and better aligns our carrying values with our future outlook,” Zaslav said.
Chief financial officer Gunnar Wiedenfels added that the outcome from the impairment charge is “consistent with where the market is” as it pertains to both the linear television market and what the investment community reflects in the company’s stock price, which has fallen over 68% since the April 2022 merger.
“There is a transition in the industry. There is a transformation of the company,” Wiedenfels added. “We are actively driving that to some extent and the goodwill impairment at the end of the day is the accounting reflection of that state of the industry and our strategy.”
Elsewhere, WBD repaid $1.8 billion of debt during the quarter, ending the period with $3.6 billion of cash on hand, $41.4 billion of gross debt and 4 times net leverage. The company purchased $3.4 billion of debt for $2.6 billion through a tender offer funded by cash on hand and a €1.5 billion senior notes offering.
Cash provided by operating activities decreased 39% year over year to $1.2 billion, while free cash flow fell 43% year over year to $976 million.
Direct-to-Consumer
The direct-to-consumer division surpassed 103 million subscribers during its second quarter of 2024, including 52.4 million domestic subscribers and 50.8 million international subscribers. But the streaming division reported a loss of $107 million, up from a loss of $3 million in the prior-year period.
Total revenue in the direct to consumer division fell 6% year over year to $2.57 billion. Distribution revenue came in flat at $2.2 billion, primarily driven by a 7% increase in subscribers following the launch of Max in Latin America
in in the first quarter of 2024 and in Europe in the second quarter of 2024, partially offset by continued domestic linear wholesale subscriber declines.
Advertising revenue grew 98% to $240 million, primarily driven by higher domestic Max engagement and ad-lite subscriber growth. Content revenue fell 70% to $123 million, primarily driven by lower volume of third-party licensing deals. Other revenue fell 67% to $3 million.
Average revenue per user came in at $12.08 domestically, $3.85 internationally and $8 globally. The increase in global DTC ARPU was primarily driven by he growth of the ad-tier domestically along with continued subscriber mix shift from linear wholesale to other distribution channels, partially offset by growth in lower ARPU international markets.
Max has launched in 65 international markets, but is still not present in over half of its global addressable markets, including Australia, Japan, the UK, Germany and Italy. The company plans to continue launching in new markets over the next 18 to 24 months.
“At the same time, we’ve been very active in reimagining our existing partnerships with international distributors of our linear channels to encourage them to support the distribution of Max in ways that are a true win win for both parties,” Zaslav continued. “These partnerships help get Max on the devices of more consumers, faster and at a fraction of the acquisition cost. We’ve done more than 150 of these deals to date in Europe and in Latin America, and you’ll begin to see them really pay off and we have more to come.”
He also touted the benefits of the company’s ongoing bundling efforts, which include the recent launch of the Disney+, Hulu, Max bundle and the upcoming launch of Venu Sports this fall.
While WBD executives continue to expect the bulk of its subscriber growth to come from markets outside of the U.S., the company expects gains in monetization from all regions, with the biggest near-term upside opportunity domestically. The company recently raised the price of the ad-supported and ad-free versions Max in the U.S., which resulted in better than expected churn.
“I expect the DTC segment to be nicely profitable for the full year, and with a strong ramp in the second half, which will represent a meaningful step towards our 2025 EBITDA target of at least $1 billion,” Wiedenfels said. “That said, as I’ve noted, we will always prioritize investing to secure profitable Max subscribers versus maximizing near term EBITDA in any given quarter or year.”
Networks
Networks revenue fell 8% year over year to $5.27 billion, while adjusted EBITDA fell 8% year over year to $1.998 billion.
The revenue decline included a 9% decrease in distribution revenue to $2.68 billion, primarily driven by a 9% decrease in domestic linear pay-TV subscribers and the impact of the company’s exit from AT&T SportsNet, partially offset by a 5% increase in domestic affiliate rates, and a 10% decline in advertising revenue to $2.2 billion, primarily driven by domestic networks audience declines of 13% and the soft advertising market in the U.S.
Content revenue grew 5% to $299 million, primarily driven by the timing of third-party licensing deals, partially offset by lower inter-segment content licensing to DTC. Other revenue fell 1% to $84 million.
Studios
Total studios revenue fell 5% year over year to $2.45 billion, while adjusted EBITDA fell 31% year over year to $210 million.
Distribution revenue was flat at $3 million, while content revenue fell 7% year over year to $2.2 billion. Excluding the impact of foreign exchange, TV revenue fell 27%, primarily driven by the timing of initial telecast productions as well as lower licensing sales; games revenue fell 41%, primarily driven by the weak performance of Suicide Squad: Kill the Justice League this year, compared to the strong performance of Hogwarts Legacy in the prior year; and theatrical revenue grew 19%, primarily due to higher home entertainment revenue from “Dune: Part Two,” and higher box office carryover due to the performance of “Godzilla x Kong: The New Empire,” which was released at the end of March.
Other revenue grew 19% to $209 million, primarily driven by the June 2023 opening of Warner Bros. Studio Tour Tokyo.
More to come….
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