Warner Bros. Discovery Reviving Growth Through Streaming and International Content, IP and Sports Partnerships Key to Long-term Value: Analyst

Benchmark analyst Matthew Harrigan reiterated a Buy rating on Warner Bros. Discovery, Inc WBD with a price target of $26.

The analyst remains enthusiastic about Warner Bros. Discovery's resilience and evergreen IP appeal, even allowing for continued news flow choppiness, unsurprising even as management pivots toward reviving growth after making very rapid progress on realizing an eventual $4.0 billion in cost reductions. 

Mid-summer entertainment trade reports have centered on a senior advertising executive's departure and continued small layoffs following significant cable network job reductions. 

Management's strategy has necessarily been to maximize the tail values for the linear networks and global licensing while adapting to consumer preferences for streaming. 

Addressing issues like AI and streaming residuals is difficult but essential to the U.S. economy and both negotiating parties. 

Although the Barbenheimer phenomenon is only a current industry respite relative to continued strike uncertainties, he remains confident in the evergreen value of the Warner Bros. studio and HBO with the potential for a solid creative rebound off the Warner Media years. 

Sports and the HGTV and Food Network lifestyle channels are the bedrock for containing linear viewing erosion, both stateside and in Europe. 

At the same time, scripted programming consumption, especially off-library IP like Friends, should increasingly gravitate toward Max. 

Relative to the NFL, there is a large inventory of NBA games, and he expects "the Association" and NBA to remain long-term partners with global potential for Warner Bros. Discovery and even Max. Repositioning more live CNN programming on Max is also essential. 

The analyst seeks more international content production, with House of the Dragon already produced in the U.K. and still in production for the new season. 

Finally, the market is ignoring the spectacular momentum and value residing at Warner Bros. This notably includes Hogwarts Legacy topping 15 million units and more than $1 billion in retail sales this May. 

Warner Bros. Discovery is reporting results on August 3. Benchmark is anticipating $10.29 billion in revenues, off (4.9%) from the year-earlier quarter. 

Concomitant Adjusted EBITDA is an expected $1.95 billion, up 10% year-over-year vs. StreetAccount consensus estimates of $10.45 billion and $2.0 billion. He expects $981 million in free cash flow for the quarter, with a full-year 2023 estimate of $4.2 billion. 

Price Action: WBD shares traded lower by 1.75% at $12.65 on the last check Wednesday.