Profitable streaming business but debt still weighs Headline here is WarnerBrothersDiscovery’s streaming unit swung from a $654M loss to a $50M profit for Q123. Aside from Netflix, none of the streamers are profitable – so profit in WBD’s streaming unit is a “big win” for the company and proof of CEO Zaslav’s drive to reduce debt and increase cashflow. Analysts were forecasting a streaming loss of ~$70M-90M. The company reported a quarterly loss of $1.07B, though its worth noting that $1.81B of that was pre-tax amortization — i.e. the company deliberately harvesting tax losses for the quarter. Adj. EBITDA grew 10% YoY to $2.6B.
We’re mostly happy with this result, though we note free cash flow sat at negative $930M due to interest payments on the company’s outstanding debt. It underscores the company’s mission to keep writing-down debt, which Zaslav has continued to do — the company wrote-down ~$5B worth of debt — total leverage still sits at 5x, and we would like to see this move down to 4x but warn that leverage is likely to remain elevated as the interest portion of WBD’s debt continues to weigh with the current interest rate environment.
We continue to see WBD as a debt offering with an equity stub (much like private equity) – right now WBD has been “leveraged up” — as that debt continues to be paid down the company will spit out more free cash flow — we expect negative earnings for the remainder of the year. See upside as +$15.00 and downside of $8.00. Read more here: research.blackbull.com
