The exterior of the Warner Bros. Discovery Atlanta campus is seen after the Writers Guild of America began its strike against the Alliance of Motion Picture and Television Producers, in Atlanta, Georgia, U.S., on May 2, 2023.
Alyssa Pointer | Reuters
Warner Bros. Discovery It missed analyst targets for both earnings and revenue in the fourth quarter as advertising slumped and the company failed to provide free cash flow guidance for 2024.
Shares of Warner Bros. Discovery fell 12% in early trading Friday following the report.
The company's fourth-quarter net loss was $400 million, or 16 cents per share, compared with a loss of $2.1 billion, or 86 cents per share, during the same period a year earlier. Warner Bros. Discovery reported a 14% decline in linear television advertising revenue excluding exchange rate changes and a 4% decline in actual distribution revenue.
“This business is not without its challenges,” CEO David Zaslav said during the company's fourth-quarter earnings conference call. “Between them, we continue to face the impacts of continued disruption in the pay TV ecosystem and a linear, dislocated advertising ecosystem. We are challenging our leaders to find innovative solutions.”
Here's what the company reported for the quarter ended Dec. 31, compared to analyst estimates, according to LSEG, formerly known as Refinitiv:
- Loss per share: 16 cents vs. 7 cents expected
- Revenue: $10.28 billion vs. $10.35 billion expected
Fourth-quarter adjusted EBITDA was $2.5 billion, down 5% from a year ago, excluding the impact of foreign exchange, as studio revenues lagged as a result of the Writers Guild of America strikes and the Screen Actors Guild-American Federation of Television and Television. Radio artists.
Studio revenue fell 17% to $3.17 billion in the quarter. The unit's adjusted EBITDA fell 29% to $543 million.
“The studio has really performed poorly, including at the end of the year where we had real difficulties,” Zaslav said during the earnings conference call.
Free cash flow
Warner Bros. Discovery generated $3.31 billion in free cash flow in the fourth quarter and ended 2023 with $6.16 billion in free cash flow, up 86% year over year. Zaslav has prioritized increasing free cash flow and reducing the company's debt.
Still, the company said there will be headwinds to free cash flow in 2024 as spending on content increases following the end of writers' and actors' strikes last year.
Chief Financial Officer Gunnar Wiedenfels declined to give guidance on free cash flow to 2024, although he noted that the Olympics, Max's commitment to growing revenue with higher spending and uncertainty of annual EBITDA could impact the cash generation this year.
“I expect 2024 to be another year with strong free cash flow,” Wiedenfels said. “I deliberately don't want to give specific quantitative guidance on free cash flow.”
Warner Bros. Discovery paid down $1.2 billion of debt in the quarter and $5.4 billion of debt in 2023. It still has $44.2 billion of gross debt remaining after paying down $12 billion of debt over the past two years.
Maximum profitability by 2023
The company's flagship subscription streaming service, Max, ended 2023 with a profit, with full-year adjusted EBITDA of $103 million.
Zaslav has sharply reduced spending on content for the streaming service since merging WarnerMedia and Discovery in 2022. His efforts have helped Max reach profitability ahead of the streaming divisions of its traditional media rivals. disney, ComcastNBCUniversal and Global supreme.
The company reported 97.7 million global direct-to-consumer subscribers, an increase of 2% from the previous quarter.
The company said Max would be profitable in 2024, although it would lose money in the first half of the year as the studio increases spending on content before recovering in the second half. Warner Bros. Discovery forecast that Max would generate EBITDA of $1 billion by 2025.
The Max advertising tier, currently only available in the U.S., will roll out to 40 international markets by the end of 2024, Zaslav said during the call.
Sports joint venture
Zaslav did not offer any details on the price of the company's upcoming sports joint venture, announced earlier this month with Disney and Fox, but reiterated that the product will be for the 60 million American households that do not currently subscribe to cable.
Zaslav noted that one of the benefits of the service, which will launch in fall 2024, is that consumers won't have to worry about finding the right channel for Major League Baseball, National Hockey League or National Hockey League playoff games. Basketball Association. because the streaming app will automatically send consumers to any game on Fox, ESPN, TNT or TBS.
Warner Bros. Discovery Chairman and CEO David Zaslav attends the world premiere of the restored 1959 4K film “Rio Bravo” presented on opening night of the 2023 TCM Classic Film Festival at the TCL Chinese Theater in Hollywood, California , April 13, 2023.
Aude Guerrucci | AFP | fake images
“We don't see many people canceling their cable subscription to get this,” Zaslav said. “The younger generation who are not subscribed, we can go after those we are missing.”
Warner Bros. Discovery continues to negotiate with the NBA to renew media rights, but will not overpay based on the company's internal estimates of the league's value, Wiedenfels said.
“It is very easy to lose control over investments in sports rights,” Wiedenfels said. “That's not how we do it. We know exactly what value we assign and we stay disciplined during our discussions.
Disclosure: NBCUniversal is the parent company of CNBC.
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