Warner Bros. Discovery Is off to an Inauspicious Start

  • Warner Bros. Discovery (WBD) stock released earnings that were less than compelling.
  • The botched CNN+ launch was a costly mistake for the company.
  • In time, it should be a solid competitor to other streaming giants, but don’t buy in right now.
A close-up of the blue and yellow Warner Bros (WBD) sign.

Source: Ingus Kruklitis / Shutterstock.com

The new media giant Warner Bros. Discovery (NASDAQ:WBD) has gotten off to a difficult start. WBD stock closed on April 28 at $18.35.

It’s been less than a month since film and television company Warner Bros. combined with Discovery, best known for its reality television programming, to form a new entertainment colossus and formidable streaming entity. However, since WBD stock began trading on April 8, the share price has fallen 22% to $18.83, a decline that company executives are doing their best to characterize as growing pains.

WBD Warner Bros. Discovery $18.35

A Messy Combination

Even though it has been a going concern for less than a month, Warner Bros. Discovery has already issued its first earnings report and provided forward guidance to analysts. However, the financial print did little to inspire confidence in the new venture as company executives warned that profits this year would be lower than expected due to what they called a “messy” combination of assets between Warner Bros., whose film franchises include Batman and The Matrix, and Discovery, best known for shows such as Gold Rush and Deadliest Catch.

Specifically, Warner Bros. Discovery reported a 13% revenue jump and consistent streaming subscriber growth for the first quarter of the year. Earnings per share came in at 69 cents compared to 21 cents in Q1 2021. Revenue was $3.16 billion versus $2.79 billion in last year’s first quarter. Discovery added two million new subscribers in the quarter, bringing its total subscriptions to 24 million. HBO and HBO Max, which are also part of the company, reported having 77 million subscribers at the end of the first quarter.

Looking ahead, the company said that its 2022 profit should be about $500 million lower than previously forecast as Warner Bros. and Discovery merge their respective assets, employees and resources, and ramp up production on new content. WBD stock fell 8% immediately after the earnings release and forward guidance were provided.

CNN+ Debacle

In addition to the ravages of the merger, Warner Bros. Discovery has already experienced a great failure in the short-lived debacle that was streaming service CNN+. The news centric streaming service, which was developed by WarnerMedia prior to the creation of Warner Bros. Discovery, lasted less than a month and failed to attract an audience. Reports say that CNN+ attracted less than 10,000 viewers a day, and the audience numbers steadily eroded. That compares to an average daily audience for the main CNN network of 773,000 people.

CNN+ launched on March 29 of this year, and a subscription to the news streaming service cost $5.99 a month or $59.99 annually. It launched on Roku and never made it to Android TV and other platforms before it was shutdown on April 21. An estimated $100 million was invested in, and 500 employees worked at, the now defunct CNN+ streaming service. While the cancellation was swift and Warner Bros. Discovery is sure to recover, the debacle was nevertheless a black eye for the newly launched company and further hurt WBD stock.

WBD Stock Needs Time

There’s a lot to like about Warner Bros. Discovery, and the new company has plenty of potential. In time, it will likely find its way and compete aggressively against other entertainment and streaming juggernauts such as Netflix (NASDAQ:NFLX) and Disney (NYSE:DIS).

But right now, the company and its stock need time to finalize the merger, achieve synergies, develop new content, grow subscriptions, and develop a long-term strategy. That all can happen, but is unlikely to happen overnight. As such, investors should wait on Warner Bros. Discovery and give the company time to develop. Right now, WBD stock is not a buy.

On the date of publication, Joel Baglole held a long position in DIS. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.  

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.


Article printed from InvestorPlace Media, https://investorplace.com/2022/04/wbd-stock-is-off-to-an-inauspicious-start/.

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