Warner Bros. Discovery's Q3 Earnings Preview - Analyst Cites Strong Franchise Value Amid AI Advancements and Industry Challenges

Benchmark analyst Matthew Harrigan reiterated a Buy rating on Warner Bros. Discovery, Inc WBD and lowered the price target from $26 to $24.

The analyst is confident of WBD’s current stock price level, which severely discounts the evergreen value of WBD’s global franchises, especially the studio and HBO. 

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Harrigan has been very cautious in recognizing the likelihood of a historically prolonged stoppage, especially with rapid AI advances, even since the start of the work stoppage. 

However, there is a decent likelihood for a resolution given the $6.5 billion in estimated costs to the California economy and considerable financial labor pain, job losses, and scripted TV season effects. 

AI remains the most annoying issue, as details for the studio proposal reportedly include the following:

• The highest wage increase for actors in four decades.
• A 100% uptick in performance compensation bonuses for high-budget series and films.
• Significant health and pension increases.

The most significant AI hurdle is reportedly using scans for performers, especially their reuse after payment for an initial scan and rights to use scans of deceased performers sans the consent of their estate or SAG-AFTRA. 

Warner Bros. Discovery has continued latitude for financial discipline across its entertainment businesses, especially off determining projects that satisfy financial ROI envelopes and more competent creative execution, especially for DC Comics projects. 

Despite significant 2023 superhero misfires at Warner Bros. and Marvel, the analyst is optimistic about Aquaman and the Lost Kingdom and the family release Wonka. 

The analyst projects Q3 revenue of $9.96 billion versus the consensus of $10.04 billion.

Price Action: WBD shares traded higher by 1.14% at $11.58 on the last check Tuesday.