Key insights
- Warner Bros. Discovery reported a wider-than-expected loss due to a Netflix termination fee, impacting investor sentiment as shares declined slightly. Negative free cash flow also contributed to the bearish outlook. While streaming and studio revenues showed strength, declines in linear networks and advertising revenue, partly due to the absence of NBA games, added to concerns. High debt levels further weigh on the company's financial health, potentially limiting future growth and investment.
NEW YORK - Warner Bros. Discovery Inc. (NASDAQ:WBD) reported a first-quarter loss that significantly exceeded analyst expectations, primarily due to a $2.8 billion termination fee paid to Netflix, though revenue met consensus estimates.
The company posted an adjusted loss of -$1.17 per share for the quarter ended March 31, compared to the analyst consensus estimate of -$0.09. Revenue came in at $8.89 billion, essentially in line with the $8.90 billion analyst estimate and down 3% YoY on a currency-adjusted basis.
The net loss available to the company included the $2.8 billion Netflix termination fee, which was paid by PSKY on WBD’s behalf under the terms of the merger agreement.
Shares fell 0.18% following the results, reflecting investor reaction to the wider-than-expected loss and negative free cash flow.
Free cash flow was -$476 million, missing the analyst estimate of $637.8 million. The company noted that free cash flow was unfavorably impacted by approximately $100 million of separation and transaction-related items, along with higher net content investment and tax payments.
Adjusted EBITDA rose 5% to $2.2 billion from $2.1 billion in the prior-year quarter. The Streaming segment showed strength, with revenue increasing 7% on a currency-adjusted basis to $2.89 billion, beating the $2.86 billion estimate. Studios revenue surged 31% to $3.13 billion, well above the $2.55 billion estimate, driven by higher intercompany content licensing for HBO Max international launches.
"The absence of the NBA in the current year negatively impacted the year-over-year growth rate," the company stated in a release, noting a 7% impact on advertising revenue, which declined 8% on a currency-adjusted basis.
Global Linear Networks revenue fell 9% to $4.4 billion, pressured by a 10% decrease in domestic linear pay TV subscribers and continued audience declines. The company ended the quarter with $30.1 billion of net debt and 3.4x net leverage.
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