It has been a rough start for entertainment company Warner Bros. Discovery (NASDAQ:WBD).
The company was formed and its stock launched in April of this year after AT&T (NYSE:T) spun-off WarnerMedia and merged it with the Discovery network in a blockbuster $43 billion deal. The company boasts some notable properties, including the Warner Bros. film studio, HBO television network, specialty channels CNN, Turner Classic Movies, the Food Network, the Discovery Channel, and D.C. Comics, among others. Its studios and networks also provide Warner Bros. Discovery with several marquee entertainment franchises, ranging from Harry Potter and Game of Thrones to Batman, Superman and Bugs Bunny.
With such a big network of entertainment properties, many analysts were bullish on WBD stock when it began trading this spring. But since making its market debut, Warner Bros. Discovery’s share price has fallen 42% to now trade at $14.28 a share. This raises a lot of questions about what exactly is going on with the New York City-based company and its stock.
|WBD||Warner Bros. Discovery, Inc.||$14.28|
Post merger, Warner Bros. Discovery has been working overtime to achieve synergies between the two companies. At the time the merger was announced, management promised to quickly find and realize $3 billion worth of synergies. Months into the marriage, Warner Bros. Discovery has announced that it is eliminating 1,000 positions in its global advertising sales team, representing 30% of the staff employed in that business unit. The cuts to the advertising sales team follow the departures of more than 30 WarnerMedia senior executives since early April.
The company-wide examination has also led to some changes on the content front at Warner Bros. Discovery, including the cancellation of some popular programs, such as the HBO series Raised By Wolves, which got the axe after two seasons. Another series from director J.J. Abrams called Demimonde was canceled before any episodes were filmed. Abrams apparently requested a budget of more than $200 million for the series, which management at Warner Bros. Discovery balked at. Still, executives at Warner Bros. Discovery have sought to reassure investors that they remain committed to strong content.
Analysts appear to have mixed views of WBD stock a few months into its life as a public company. Concerns seem to focus on the streaming industry’s long-term prospects coming out of the Covid-19 pandemic, as well as Warner Bros. Media’s ability to actually achieve the promised synergies without harming its content development pipeline. On the plus side, bullish analysts say that the entertainment company has all the tools needed to be a dominant global powerhouse. They also like Warner Bros. Discovery’s sports offerings, which were acquired through Turner Sports and include the rights to games from the National Basketball Association (NBA) and the National Hockey League (NHL), among others.
The company recently hired Luis Silberwasser to spearhead its sports programming, which includes TV shows such as Inside the NBA, March Madness men’s basketball tournament, and Major League Baseball (MLB) playoff games. Warner Bros. Discovery has said that it wants to integrate live sports into its streaming packages moving forward. In June, JPMorgan Chase (NYSE:JPM) began coverage of Warner Bros. Discovery with a “neutral” rating, saying that more clarity is needed around the company’s direct-to-consumer strategy post-merger. Other analysts have expressed concerns about the more than $40 billion of debt that Warner Bros. Discovery has on its balance sheet.
Doug Creutz, an analyst at investment bank Cowen (NASDAQ:COWN) reaffirmed his “outperform” rating on WBD stock in June with a price target of $24 a share. In his analysis, Creutz noted that WBD shares currently trade at six times estimated fiscal year 2023 earnings compared to 11.6 times for Disney (NYSE:DIS) and 9.3 times for Paramount Global (NASDAQ:PARA). It’s worth noting that among 19 analysts who cover Warner Bros. Discovery, the median price target on the stock is $27, implying 89% upside. The lowest price target is $18.
Put WBD Stock on Your Watchlist
In time, Warner Bros. Discovery stock could be a great investment and people might kick themselves for not buying it at current levels. That said, it’s early days for the company and management faces numerous challenges as they seek to integrate WarnerMedia and Discovery, realize promised cost savings, and carve out an identity for the company and its content. While the company has lots of promise, there remain many hurdles for it to jump to get out in front of its competitors and ahead in the global race to dominate streaming, sports, and other forms of media and entertainment. Until it become clear whether Warner Bros. Discovery can win that race, investors would be smart to keep the company on their watchlist. Right now, WBD stock is not a buy.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.