Warner Bros. Discovery Analyst Says DTC Strength Won't Offset 'Joker: Folie A Deux' Flop, NBA Rights Concerns

Media company Warner Bros. Discovery WBD could be in for a tough fourth quarter with concerns about the company's DC Studios reboot, the loss of NBA rights and the underperformance of "Joker: Folie a Deux" at the box office.

These are among the main reasons an analyst is lowering estimates and the price target on Warner Bros. Discovery ahead of fourth-quarter financial results.

The WBD Analyst: Goldman Sachs analyst Michael Ng maintained a Neutral rating on Warner Bros. Discovery and lowered the price target from $10.75 to $9.75.

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The Analyst Takeaways: The analyst expects Warner Bros. to report strong direct-to-consumer additions in the fourth quarter.

Outside of that segment, Ng sees struggles for the media company in other segments including linear networks, advertising and studio.  

"WBD stock has outperformed the market since its last earnings report on 11/7/24 during which WBD reached a new agreement with NBA, had an earlier than-expected carriage renewal with Comcast, and announced a new corporate structure plan that splits linear networks business from streaming and studios," Ng said.

The analyst said investor debates will center on topics such as the linear networks outlook, direct-to-consumer momentum and the DC Studios reboot moving forward.

For the DC Studios segment, the analyst lowers the EBITDA target from $874 million to $800 million, citing the underperformance of "Joker: Folie a Duex" at the box office.

While there are concerns about the impact from the flop of "Joker: Folie a Deux" and the loss of NBA rights, the analyst sees strength ahead for the DTC segment.

"Looking ahead, we estimate WBD can achieve $1.56 bn in DTC EBITDA in 2025E driven by international market launches and content timing."

The analyst highlights international expansion opportunities for the Max streaming platform, password-sharing initiatives, new content, price increases, bundling and ad-lite penetration as catalysts to help power streaming growth.

"Although we're encouraged by WBD's DTC momentum as well as investments in Linear Networks sports programming, the loss of domestic NBA media rights creates mid-term uncertainty in the outlook for Linear Networks profitability," Ng said.

WBD Price Action: Warner Bros. Discovery stock closed Wednesday up .62% to $9.79 versus a 52-week trading range of $6.64 to $12.70. Warner Bros. stock is down 5% over the last year.

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Photo: Courtesy Warner Bros. Discovery