Barbie's Success Drives Optimism for Warner Bros. Discovery Studios, Analysts Say

Truist Securities analyst Matthew Thornton maintained Warner Bros. Discovery Inc WBD with a Buy and lowered the price target from $18 to $17.

The analyst published his updated model post-2Q results, which saw impressive and strong FCF, and cost synergy execution but soft results, as expected. 

FCF was impressive, but numbers were otherwise soft, with revenue below and AEBITDA slightly above our expectations, driven by lumpy (and high-margin) DTC content sales. 

WBD raised its synergy target (to >$5 billion from >$4 billion through 2024+), with the $2 billion target for 2023 already achieved. 

WBD now expects an impressive $4.5 billion - $5.0 billion in FCF in 2023 (another $1.7 billion in 3Q, similar to 2Q), though there is some pull-forward per ongoing strikes.

WBD lowered its Adjusted EBITDA guidance for 2023 from $11.0 billion - $11.5 billion to the low end of that range, which is spot in line with consensus (Thornton remain modeled at $10.9 billion), as increased synergies and Barbie's runaway success is offset by now assumed lack of recovery in the linear ad market in the second half.

For the second half, DTC's positives should include the start of the MAX International launch and potentially bringing CNN and/or sports to MAX.

Looking Forward – Barbie should be a material-positive driver in Studios' 3Q (box) and 4Q (home entertainment/other windows). WBD also has three other films (The Meg, Blue Beetle, The Nun plus Mortal Kombat (game) releasing in 3Q.

– WBD no longer expects ad market improvement/recovery in the second half, further complicated by the ongoing strikes. WBD will also wind down (or sell) its RSN by year-end, impacting revenue. Looking to 2024, Networks should benefit from favorable comparisons: Olympics; NCAA Final Four; political/presidential cycle; easy comps per macro pressures.

Thornton's 2023 AEBITDA, FCF, revenue is $10.9 billion, $4.8 billion, $42.5billion (prior $10.9 billion, $4.0 billion, $42.9 billion) and 2024 to $12.3 billion, $4.9 billion, $42.8billion (prior $12.5 billion, $5.2, billion, $43.8 billion).

Benchmark analyst Matthew Harrigan reiterated a Buy rating with a price target of $26.

Barbie's $1B global box office crossing this weekend attests to both creative and marketing prowess - including new studio management increasing the movie's production budget while having tossed specific other inherited projects, including Batgirl.

Barbie partner Mattel, Inc MAT has 14 projects in active development across multiple studios and 'A' list partners.

Price Action: WBD shares traded higher by 2.93% at $14.38 on the last check Monday.