Analyst Expresses Concerns Over Warner Bros. Discovery's Increased Churn Rates, Lowers Expectations

KeyBanc analyst Brandon Nispel has a Sector Weight rating on Warner Bros. Discovery, Inc WBD.

The analyst lowered his WBD Domestic DTC Net Additions to -2.0 million (consensus -1.2 million) from zero to reflect higher churn in his Key First Look Data. 

In his Key First Look Data, Max churn increased to 4.9%/month in May from 3.4%/ month in April. The month-on-month increase was one of the largest Nispel has seen in his data, which he believes could reflect the "Max" rebrand and relaunch and the overlapping Discovery+ subscribers. 

Given the 140 bps m/m increase the analyst has seen in his monthly churn data, he believes gross additions would have had to materially improve to offset this spike in churn, which he did not think was the case. 

While there are a few indications that the churn could be short-term, Nispel did not feel comfortable with his above consensus estimate. 

Net, his 2Q and 2023 DTC subscription revenue estimates move -1.5% and -2.9% lower, respectively, and are both below consensus due to his Key First Look Data analysis that flows through his model and moves 2023 and 2024 total revenue estimates -0.6% and -1.3%, respectively. 

Price Action: WBD shares traded lower by 2.26% at $11.82 on the last check Friday.