Marketing assets

Warner Bros. Discovery cuts earnings forecast as it resolves ‘messy’ assets (NASDAQ:WBD)

Warner Bros. Discovery (NASDAQ: WBD) turns the page with today’s first quarter results, covering a quarter that ended just before Discovery merged with WarnerMedia to launch a new media powerhouse. So the financials were only going to be so valuable over the sequel comments.

The company’s earnings call on Tuesday provided that in spades, including some pointed criticism from Discovery’s new overlords about what they found looking behind the curtain.

WBD says it is lowering earnings expectations for 2022, which “will undoubtedly be a complicated year,” chief financial officer Gunnar Wiedenfels said.

The stock is off its session lows (a day when the market crashes as a group), but it is still 4.3% lower tuesday.

Wiedenfels largely played the role of bad cop on the call, as new CEO David Zaslav said he was “impressed by the strong sense of motivation and excitement” and that the merged entities have now become one ” a much more balanced and competitive company”. And while Wiedenfels intended to focus on Discovery’s first quarter results, he spent a lot of time preparing analysts for the road ahead.

“Starting with the bad news, WarnerMedia’s first quarter operating profit and cash flow were clearly below my expectations,” he said. “And given first quarter performance and previously unplanned projects in sight, I currently estimate that the WarnerMedia portion of our earnings base for 2022 will be approximately $500 million lower than I had anticipated. – however, with the positive offsets of a few hundred million dollars on the Discovery side of the combined company.”

He also sees an opportunity, however: “There are certain investment initiatives underway which I believe do not have attractive enough return profiles. As such, and with our new management team combined in place from the outset, I feel very confident in our ability to correct some of the factors driving the profitability discrepancies and some very quickly, with CNN+’s decision last week being Exhibit A.”

Zooming in on cash flow trends in response to a question, Widenfels was more critical, noting that if you exclude WarnerMedia over the past 15 months, “we’re looking at over $40 billion in revenue and really hardly any cash flow.” available cash.”

“And good or bad, management made the decision to invest a large portion of the incoming funds in a number of investment initiatives. And as I look under the hood again here, CNN+ is only an example, and I don’t mean to go through some sort of list of specific examples, but there are a lot of large investments that lack what I would consider a solid analytical and financial foundation and address the hurdles of return on investment that I would like to see for major investments,” he continues.

As for streaming optimism, Zaslav said 18 Days as a New Venture has so far not changed the streaming thesis with which Discovery entered the deal: , which is spurred by the combination of these two phenomenal content portfolios and the great work the teams are doing here.” He hints at a major Discovery/HBO streaming app slated to arrive in 2023 – and the company has begun to discontinue marketing its Discovery+ offering from the first trimester.

In AT&T’s earnings report (covering WarnerMedia’s first quarter), it noted that HBO and HBO Max had 76.8 million subscribers at the end of the quarter.

Wiedenfels says there’s “significant churn on HBO Max, much higher than the churn we’ve seen,” adding that because Discovery has had a presence there in Europe for eight years, “as we begin manage churn in a meaningful way, it provides real meaningful growth.”

WBD will be looking to shake up streaming with its combined efforts – and Nielsen’s latest look at the share of streaming TV shows hit a new high in terms of how much time viewers spend on the services.