HBO Max Relaunch Boosts Warner Bros. Discovery Stock, Analyst Upgrades to Outperform

Barrington Research analyst James Goss upgrades Warner Bros. Discovery Inc WBD from Market Perform to Outperform and an $18 price target.

WBD focuses on attracting and retaining subscribers, targeting $1 billion in profits for the new service in 2025.

The company expects the segment loss to expand to $(300) million as it markets the launch of the new service, somewhat narrower than the consensus. 

The U.S. component of “Max” will likely achieve profitability this year – one year earlier than initially planned. However, the international service will probably post a sizable loss as WBD invests in growing the sub-base. 

The current service has successfully developed an attractive content portfolio, resulting in a sizable domestic base, though lagging some of its peers. 

Its hit programming has attracted a sizable audience, and growing the breadth of content should improve engagement and users.

 A relaunch of HBO Max to a combined product branded simply as “Max” is set for May 23. 

HBO will continue to play a prominent role as a premium brand with significant adult targeting.

However, using a more broadly inclusive name for the overall service identity will likely provide a more significant opportunity to appeal to family audiences with brands like Cartoon Network, Loony Tunes, and Hanna Barbera. 

Reaching consumers through adlite and premium provides multiple ways to monetize its vast content offering. 

The 2023 theatrical slate includes a roster of film and game releases that can support profitability, and the TV studio remains a valuable partner across the industry. 

The company should achieve meaningful improvement in FCF, executing a synergy target of $4 billion. Despite a soft ad market to start the year and increased studio output, the company expects synergy realization to support EBITDA improvement to at least $11 billion. 

Price Action: WBD shares traded lower by 4.80% at $12.20 on the last check Tuesday.