Warner Bros. Discovery Faces Softened Ad Market, Analyst Lowers Q2 Estimates

Needham analyst Laura Martin has a Hold rating on Warner Bros. Discovery, Inc WBD.

On July 11, the analyst will host a 30-minute Zoom interview with Bill Duggan, Group EVP of the ANA, to discuss the association's 37-page study that identifies critical problems with programmatic advertising compared with direct sales of ads (which WBD uses). 

The ANA (Association of National Advertisers) represents large brands and ad agencies. 

Martin lowered her 2Q23 estimates for WBD but maintained full-year FY23 revenue and EBITDA estimates by raising 4Q23 numbers to offset 2Q23 weakness.

The analyst lowered her WBD 2Q23 estimate for GAAP revenue by 4% to $10.4 billion (down 4% Y/Y on a PF basis), EBITDA estimate by 22% to $1.9 billion (up 9% Y/Y on a PF basis), and EPS estimate to a loss of $0.36 (below her previous estimate of a loss of $0.20).

The guidance revision reflects a softer ad market than previously estimated, weaker than estimated box office performance of The Flash, 

higher than previously estimated marketing expenses for WBD's upcoming movie slate, including Barbie and The Flash, difficult Y/Y comps in the Studio segment.

Studios. For 2Q23, Martin estimates this segment will report revenue of $3 billion (down 11% Y/Y and 10% below her previous estimate) and adjusted EBITDA of $345 million (down 16% Y/Y and 46% below her last estimate). 

Networks. For 2Q23, the analyst estimates the Networks segment will report revenue of $5.6 billion (down 8% Y/Y and 1% below her previous estimate) and adjusted EBITDA of $2.2 billion (down 6% Y/Y and 6% below her last estimate). 

DTC. For 2Q23, Martin estimates that direct-to-consumer (DTC) will report revenue of $2.5 billion (up 3% Y/Y and no change) and adjusted EBITDA Loss of $301 million (up 46% Y/Y and 33% better than her previous estimate). 

Price Action: WBD shares traded higher by 2.82% at $13.32 on the last check Tuesday.