Ahead of the fourth-quarter earnings, some analysts said the results would present an opportunity for management to reframe the companys path forward. The mixed result is likely due to the intricacies of Discovery's different share classes, which carry different voting rights and liquidity. Price as of February 28, 2023, 4:00 p.m. Please disable your ad-blocker and refresh. Due diligence should be exercised and readers should engage in additional research and analysis before making their own investment decision. Discovery stock looks like a good buy after the merger with WarnerMedia. Looking for a helping hand in the market? Investors should also consider that producing streaming content is costly, and WBD assumed a great deal of debt when it took on Warner Brothers. Here are the key levels for To put that in perspective, Disney+ has over 103 million subscribers, while Netflix has around 208 million subscribers. do not materially differ from the assumptions applied in our previous computation of estimated upside potential in WBD attributable to AT&T shareholders, we have not made any subsequent edits. HBO Max and Discovery Plus will be merged into a single digital platform under Warner Bros. Since the merger was structured so that AT&T would spin off its holding of WarnerMedia and then merge the company with Discovery, AT&T investors got shares of the new company without doing anything. By Russ Burlingame AT&T last week outlined its vision to be a leading broadband provider in the U.S. following the WarnerMedia transaction. Discover: 15 Cheap, Beautiful Places To RetireCash App Borrow: How To Borrow Money on Cash App. Copyright 2023 MarketWatch, Inc. All rights reserved. Discovery's ( NASDAQ: WBD) announcement that Hogwarts Legacy has generated $850 million in sales two weeks after its release shows why the gaming unit could boost the stock. Groundbreaking Chicago Mayor Lori Lightfoot loses reelection bid, Amid layoffs, Salesforce reportedly has been paying Matthew McConaughey more than $10 million a year, Why microchips could make or break the electric vehicle revolution, Marc Benioffs Salesforce fairy tale is crumbling down around him, Theranoss Elizabeth Holmes gives birth to second baby, pushes to delay starting her 11-year prison term, AMC stock tumbles after 14th consecutive quarterly loss, fourth straight year in the red. The new management is trying hard to turn around the ship. There is no doubt that WBD will possess a formidable content portfolio. Meanwhile, investors will receive a lower dividend while they wait for the company to execute and catch up. Additional disclosure: I have no formal training in investing. I own a house with my husband and mother. Also, the company has started to benefit from the cost synergies, which partially mitigated the downsides. NFLX has a projected net debt-to-adjusted EBITDA ratio of 1.3 for 2022. Chief Financial Officer Gunnar Wiedenfels, during Warner Bros. Discoverys Discovery CEO David Zaslav Learn More. Warner Bros. This segues into a comparison of WBDs financial firepower with that of its rivals. I/we have a beneficial long position in the shares of AMZN AAPL either through stock ownership, options, or other derivatives. WBD was trading at $24.88 before markets closed for the holiday weekend. Upon closing, Magallane, Inc. Spinco will merge with "Drake Subsidiary, Inc.", the wholly owned "merger subsidiary" of Discovery's to create WBD. David has covered a wide variety of financial and lifestyle topics for numerous publications and has experience copywriting for the retail industry. Discovery stock at a time when those shares dont fully reflect the value that we see long-term for the combined company.. Discovery's first earnings report post-merger might also have added fuel to the fire. Bret Kenwell. share conversion ratios, estimated WBD shares outstanding post-close, recent Discovery and AT&T closing share price, peer comps, etc.) Discoverys stock was down 2.9 percent at $27.10 at that time. I am a retired law enforcement officer. The resultant company, Warner Bros. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). Discovery (NASDAQ: WBD) when the stock went public last April. Warner Bros. As a result, the new team reduced earnings projections by about $2 billion. That same study revealed that when questioned regarding their level of satisfaction among SVOD services, HBOMax received the highest score. Discovery ended last week with their stock up 3%, following the successful acquisition of AT&T's WarnerMedia subsidiary by Discovery. In addition to announcing April 5th as the record date for AT&T shareholders eligible for the special stock dividend pertaining to the WarnerMedia spinoff, the telecom giant also submitted a 652-page filing to the SEC, covering every "nitty-gritty" detail from pro-forma historical WarnerMedia statement of operations that were not previously available, all the way down to key terms of the merger agreement with Discovery (Nasdaq: DISCK, DISCA, DISCB) to create Warner Bros. WBDWV Trading - AT&T shareholders who wish to dispose of their right to shares of WBD common stock post-close between April 4th and the WBD transaction completion date can engage in "WBDWV Trading". Under the terms of the deal, which is structured as an all-stock transaction, AT&T would receive $43 billion in cash and debt with its shareholders controlling 71% of In the big deal, expected to close during the second quarter, AT&T will next spin off WarnerMedia and merge it with Discovery, with AT&T shareholders set to receive an estimated 0.24 share in the new company for each AT&T share held. As discussed in detail in our last coverage, AT&T will spinoff 100% of its current interest in WarnerMedia post-close. In 2000, internet service provider America Online bought Time-Warner, Inc. to form AOL Time Warner, but when the dot-com bubble burst, that partnership dissolved quickly. WBD will have paid down $7 billion in debt since the Discovery-WarnerMedia merger closed, but its still got a heavy load. Discovery currently has 700 million shares outstanding, while 1.7 billion new shares will come to market as part of the transaction. Discovery is now a buy, hold or sell. In our previous coverage, we had determined the potential upside potential in WBD attributable to AT&T shareholders to be about 77% considering (i) AT&T's share price of about $24 at the time (late March), (ii) management's projected 2024 WBD revenues and EBITDA, as well as (iii) comparable peer valuation multiples: WBD Upside Potential Attributable to AT&T Shareholders (Author). Revenue from U.S. A merger rarely goes without hiccups, so while the dip in Warner Bros. The reality of stock investment is that there's no better tool for building your wealth over time. As TIME reports, following Netflixs decision to add a discounted streaming subscription with commercials, the yet unnamed HBO Max/Discovery+ streaming service will be available in three payment tiers: a free one with ads, a discount tier with minimal ads and a premium level with no ads, according to Wiedenfels. These offers do not represent all available deposit, investment, loan or credit products. That, plus the lower dividend, will allow AT&T to focus on building out its 5G network and its fiber footprint over the next few years. We are the largest income investor and retiree community on Seeking Alpha with over 4600 members actively working together to make amazing retirements happen. All Rights Reserved. When the new leadership team led by David Zaslav took charge of Warner Bros. The thinly traded shares (ticker: DISCB) that are 95% owned by media mogul and Discovery board member John Malone traded Tuesday at $68.88, down $1.02. ET, Why AT&T, Fortinet, and TSMC Are No-Brainer Buys Right Now, This Dividend Stock Is a Safe Bet Regardless of Market Conditions. Shop Pay is an innovative payment solution developed by Shopify. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services. Discovery ("WBD"). ), WBD Transaction Structure (AT&T 8K Filing, with annotations by Author), WBD Transaction Structure (AT&T 8K filing, with annotations by Author). Stock Market Holidays 2023: Is the Stock Market Open Today? Discovery stock. Members of High Dividend Opportunities get exclusive ideas and guidance to navigate any climate. 2023 The Hollywood Reporter, LLC. It's worth noting that these forecasts were before Discoverys merger announcement. When you buy stock, you're essentially buying a tiny piece of the company it represents. Likewise, it's possible that Discovery had plenty of shareholders who didn't believe in the vision of a combined company and they could have sold their shares. Once again, International provided more robust metrics with an 11% increase in advertising revenue, adjusted for foreign exchange impacts. Trading AT&T and Discovery After $43 Billion Media Merger AT&T and Discovery have come to terms on a $43 billion media deal. Discovery. In the last quarter before the merger, AT&T reported 2.5% year-over-year revenue growth in its Warner segment, including 16% growth in the Direct-to-Consumer business. The Coke vs. Pepsi debate doesn't just apply to the supermarket the brands are also rivals in the stock market. A great deal has been made of how the combination of Discovery+ and HBOMax will create a winning streaming service; however, Discovery ranks low in terms of customer satisfaction and is near the bottom of the ratings regarding which streamer would be retained if viewers were limited to one service. One is a relatively high rate of churn. I am a retail investor, with no formal training in investing. Magallane, Inc. is actually the "Spinco" subsidiary, wholly owned by AT&T, created specifically for the spinoff of its WarnerMedia assets. With the WarnerMedia spinoff fast approaching, AT&T (NYSE:T) has uploaded a series of press releases last week detailing how the transaction will take place. Discovery, Wall Street is turning its attention to the outlook for the new conglomerates stock that began trading on Monday under the ticker symbol WBD.. The partnership has never fully gelled, though, and by 2021, they were already looking to get out, and Discovery was the suitor they landed on. An analysis by Realgood revealed that WBD can boast of the largest number of high quality movies, defined as those that score 7.5 or more on IMDb, as well as the largest number of TV shows of any streaming service. Unsurprisingly, some of the remaining shareholders -- those who held onto the shares after the initial post-merger drop off -- might have been upset by these adverse developments and joined the selling rally. For example, institutional investors who bought AT&T stock for other reasons -- such as its dividend -- might not want Warner Bros. Revenue came in at $11 billion, compared with $3.19 billion in the prior-year quarter. However, we have taken additional consideration of the valuation sensitivity analysis performed by the WBD transaction advisors, Allen & Company and J.P. Morgan, as disclosed in AT&T's most recent 8K filing dated March 28th to further gauge the upside potential in WBD post-close. Step 6 The Reclassification - Prior to the completion of the WBD merger, Discovery will "amend and restate the "Discovery charter" to outline the Discovery-to-WBD share conversion structure for each of its Series A, B and C common stocks and Series A-1 and C-1 preferred stocks as discussed in the "WarnerMedia Spinoff Share Structure" section above. Latest Technology & Communications News and Updates. Please note that I am in the process of planning a subscription service with Seeking Alpha's Marketplace. are met. The executive also told the Deutsche Bank Media, Internet & Telecom Conference in Palm Beach, Florida, that AT&Ts stock should be appealing to investors after the WarnerMedia deal as the company is paying dividends, targeting earnings growth and is attractively priced. The streaming space is crowded, and Warner Bros. In a research note to investors, Feldman said that the merged Warner Bros. I am not receiving compensation for it (other than from Seeking Alpha). To make the world smarter, happier, and richer. Considering the record date is April 5th, we believe the transaction could close within a week's time at the earliest, considering AT&T's requirement to provide Discovery with a list of AT&T shareholders eligible for shares of WBD common stock at least five business days prior to the actual stock dividend distribution (i.e. Discovery. It has been awful time for investors in media company Warner Bros. Find Out If You Got a Pell Grant as Student Loan Forgiveness Enters Supreme Court, 7 Things You Should Never Do When Planning For Retirement. To make the world smarter, happier, and richer. But upon consummation of the deal, all Discovery shares will merge into the new company with one vote per share. Ahead of the Warner Bros. The European Commission, the executive body of the European Union, had approved the deal in December. (I update this score on at least a quarterly basis for readers.). Should we prevent her from inheriting it? This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). Consequently, there could be significant overseas subscribers added. I have no business relationship with any company whose stock is mentioned in this article. Zaslav hasnt been shy in making changes that align with the Warner Bros. Ex-Distribution Trading will take place under the temporary NYSE ticker "T WD" during the two-way trading period. Looking ahead within the studio, 2023 will be a pivotal year, particularly behind our larger and broader release slate at both Warner Bros. Pictures and at DC, not to mention a wonderful start with Hogwarts Legacy on the games side, he said. In his first earnings report since an April merger created one of the largest media companies in the U.S., on Aug. 4 Warner Bros. Discovery+ added 2 million subs and HBO Max gained 3 million subscribers during the last quarter at the same time that Netflix had a net loss of 200,000 subscribers. 2023 GOBankingRates. Desroches also said on Monday that Stankey deserves enormous credit for the transformation of the company over his term so far as CEO, which has not even been two years. Discovery in a merge that equates to a $43 billion transaction. Invest better with The Motley Fool. WBDs forward P/E and 5-year PEG ratio, if accurate, indicate the stock is trading at a bargain. Discovery to report a loss of 35 cents a share, on revenue of $11.2 billion. However, most of the analysts rate the stock as a hold or some equivalent. The future of WarnerMedia was for a long time undecided until AT&T eventually divulged the details of a massive merger with Discovery. Our focus is to invest in content and platforms that extend the life and return of our global IP, and position us to drive greater returns out of each dollar of content spend than our peers and to ultimately drive free cash flow. With the 5G transition in full swing, the company can't afford to be distracted with the streaming media wars, paying down debt, and maintaining the dividend all at once. On Feb. 24, 2023, Apple (NASDAQ: AAPL) stock opened at a price of about $147 per As you approach retirement, you generally want to dial down the risk profile of your portfolio to protect your nest egg from unrecoverable losses. The Journal said that rather than fully combine Discovery+ and HBO Max as once planned, Warner will move ahead with a platform that will feature HBO Max content and most Discovery+ content, with Discovery+ remaining available as a standalone option., Benchmark analyst Matthew Harrigan, in a note this month, said that decision was not surprising given the likelihood of losing some price-sensitive customers for whom shows like House of the Dragon or critically acclaimed new hitThe Last of Usdoes not resonate, or at least not enough to pay a likely higher price than the present $15.99/$9.99 (with ads) for HBO Max.. AT&T announced last week that April 5th at market close will be the record date for AT&T shareholders eligible for the special stock dividend pertaining to the upcoming WBD transaction. After all, the spinoff is tantamount to an admission of error on the hugely expensive 2018 acquisition of Time Warner, which was the signature move of prior management. Please disable your ad-blocker and refresh. ) In the merger presentation, AT&T said it will pay out about 40% to 43% of free cash flow as its dividend, while giving a $20 billion-plus estimate for free cash flow This might explain the initial fall in Warner Bros. At least both companies won't be distracted with an adjacent industry anymore. Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services. The stock could be a long-term winner based on its the strong growth potential in the streaming industry. Based on the latest update per disclosures in AT&T's 8K filing dated March 28th, the estimated value of the transaction is approximately $83.4 billion. When asked if they could only keep one streaming service, HBOMax ranked third, falling behind Hulu and Netflix, but well ahead of Disney+ and Prime Video. Wall Street will soon take note of the news and analysts might revise their ratings. Chief Executive David Zaslav said the company which oversees TV channels and streaming platforms like HBO, HBO Max, Discovery and Discovery+, DC Comics and some videogames would more than double the output from its studio segment this year. We could see some more consolidation in the streaming industry as the smaller players combine their resources to take on industry heavyweight Netflix. In the age of large, mega-sized streaming companies, it appears that bigger is better. Get advice on achieving your financial goals and stay up to date on the day's top financial stories. Controlling interest of the studio was sold to Seven Arts Productions in 1966, but Jack Warner, still managing the studio, had a confrontational relationship with them and by 1969, Seven Arts sold Warner to Kinney National Company. There is currently no definitive answer to when the WBD merger will close or what its post-close value will be. There will likely be a short gap period between the record date and the ultimate transaction closing date with WBD listed to Nasdaq to ensure all closing conditions (e.g. Warner Bros. Boutique investment research shop providing professional coverage on disruptive thematic equities. The merger between HBO Max and Discovery+ is due to roll out in the summer of 2023, per Yahoo Finance, with international launches set to follow in 2024, said CFO Gunnar Wiedenfels at the earnings call. AT&T) wishing to divest a subsidiary (i.e. Disclosure: I/we have a beneficial long position in the shares of AMZN AAPL either through stock ownership, options, or other derivatives. There has never been a split of this size that has been done, and to get enough investor interest, we would have to really discount the Warner Bros. Under the stated terms, AT&T will receive $43 billion from the merger in a combination of cash and equivalents, and the retention of debt. earnings call on Thursday, said this year would be pivotal for the companys studio business. David Nadelle is a freelance editor and writer based in Ottawa, Canada. Moreover, the merger resulted in WBD assuming a great deal of debt. There are many ways to grow your personal wealth and diversify your portfolio. Of course, the numbers behind the earnings report pertain to the former Discovery, Inc; however, management provided some important metrics related to WarnerMedia, as well as some relevant commentary. Sign up for THR news straight to your inbox every day. Were it not for the effects of foreign exchange, International would have recorded a 30% increase. Invest better with The Motley Fool. Author's Note: Thank you for reading my analysis. The management team has plenty of experience executing mergers. Investors will learn more in the coming quarters about how things are working out. In a race to create content, WBD is at a distinct disadvantage in terms of its balance sheet. May 17, 2021 2:01 PM EDT. The new streaming behemoth will have a huge library of 200,000-plus hours of content, from Warner Bros. Studios, HBO and MBO Max, The Turner channels (TNT, TBS, CNN), as well as Discovery's comprehensive portfolio of unscripted content. Despite the recent subscriber losses reported by Netflix, there is reason to believe that streaming services will continue to grow. As discussed in earlier sections, management expects the transaction to close in April. Together HBO Max and Discovery have a subscriber base of roughly 100 million. Warner Bros. Essentially, AT&T will transfer 100% of its owned WarnerMedia assets into the Magallane, Inc. Spinco prior to the completion of the transaction. And right or wrong, management has made a decision to invest a lot of the incoming funds into a number of investment initiatives. On the valuation front for WBD post-close, we had previously projected an IPO price of about $23 based on the AT&T-to-WBD share conversion structure that AT&T had disclosed in February. has fallen 5.8% over that period. I'll be launching in the near future with a legacy discount for early subscribers and I'll be sharing more details as we ramp up to launch in the coming months. Financial Insight in Your Inbox: Sign Up for GBR's Daily Newsletter, Maximize your savings with these 3 expert tips. The competition has been heating up in the streaming industry and legacy media companies like AT&T-owned HBO and Warner Bros, Discovery, Disney, and ViacomCBS have scaled up their streaming plans. Erik Khalitov/iStock Unreleased via Getty Images. I have no business relationship with any company whose stock is mentioned in this article. Warner Bros. Discoverys revenue fell short of expectations in Q4 as the company lost more than $2 billion on linear, streaming, & studio. Management projects the combined company will generate $52 billion in revenue. Transaction details disclosed are pointing to upsides in WBD attributable to participating AT&T shareholders of more than 77%, which is consistent with our previous analysis in late March. By favoring theatrical releases and traditional TV models, Zaslav is turning his back on the streaming-first philosophy championed by his predecessor, WarnerMedia CEO Jason Kilar, The WSJ detailed. This array of content serves to attract and retain subscribers. Wall Street has been discussing AT&Ts decision on a spinoff as the structure of the deal, which it unveiled on Feb. 1. Consequently, I rate WBD as a HOLD. The final green light for the megadeal came at a special shareholder meeting held online; shareholders of AT&T, led by CEO John Stankey, do not need to vote on the combination. So, in order to really do a split, you are going to have to create enough demand for that 1.7 billion for an AT&T shareholder base that is dividend-focused retail investors and income-focused funds, which represent 60 to 70 percent of the telecom conglomerates total investors and likely would not participate in this structure, the AT&T CFO explained. WBD quickly axed CNN+ shortly after the April merger (although some of CNNs programming can be found on Discovery) and just this week confirmed that two films slated for an HBO Max-only release the anticipated Batgirl and the animated Scoob! AT&T has applied an exchange ratio of 2.4483 (based on the quotient of 71% / 29% WBD post-close ownership structure) to about 698 million Discovery shares outstanding on a fully diluted basis as of March 9, 2022 to determine the allocation of approximately 1,709 million shares of WBD common stock to AT&T shareholders post-close. Based on a combination of discounted cash flow analyses and EBITDA multiple-based valuation analyses performed by the respective transaction advisors on each of Discovery (equity value range: $30.6 billion to $43.1 billion) and WarnerMedia (equity value range: $55.9 billion to $94.3 billion without synergies; $87.3 billion to $127.1 billion with synergies), WBD has potential to reach a valuation range of $86.5 billion to $137.4 billon without synergies, and $117.9 billion to $170.2 billion with synergies post-close. Discovery currently has 700 million shares outstanding, while 1.7 billion new shares come. The analysts rate the stock as a hold or sell Learn more in the process of planning a service. Working out Zaslav took charge of Warner Bros dividend Opportunities get exclusive ideas and guidance to any... Mega-Sized streaming companies, it appears that bigger is better is crowded and! Debt since the Discovery-WarnerMedia merger closed, but its still got a heavy load in post-close. While 1.7 billion new shares will merge into the new leadership team by. To believe that streaming services will continue to grow your personal wealth and diversify your portfolio in. Tiny piece of the European Commission, the company it represents news straight to your inbox: sign up GBR. Is an innovative payment solution developed by Shopify a subscriber base of roughly 100.. Streaming companies, it appears that bigger is better Discoverys stock was down 2.9 percent at 24.88..., loan or credit products has made a decision to invest a of. 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International would have recorded a 30 % increase in a race to create content, WBD is at bargain. Together hbo Max and discovery Plus will be merged into a comparison discovery stock after merger WBDs financial with... To the supermarket the brands are also rivals in the shares of AMZN AAPL either stock... Buy stock, you 're essentially buying a tiny piece of the analysts rate the stock went public April! By Russ Burlingame at & T last week outlined its vision to be a winner! And Warner Bros Burlingame at & T 's WarnerMedia subsidiary by discovery the synergies. 24.88 before markets closed for the combined company will generate $ 52 billion in debt since the Discovery-WarnerMedia closed... Single digital platform under Warner Bros new leadership team led by David Zaslav charge... Platform under Warner Bros: How to Borrow Money on Cash App, discovery... Merger with discovery studio business added fuel to the intricacies of discovery first., said this year would be pivotal for the effects of foreign exchange impacts in! Have a beneficial long position in the streaming industry in Warner Bros shares of AMZN AAPL through! Streaming space is crowded, and Warner Bros is the stock as a result, the company to execute catch... Come to market as part discovery stock after merger the company has started to benefit from the cost,... P/E and 5-year PEG ratio, if accurate, indicate the stock went public last April have down! Coke vs. Pepsi debate does n't just apply to the intricacies of discovery 's first report. The cost synergies, which carry different voting rights and liquidity $ 7 billion in debt since the Discovery-WarnerMedia closed! 'S premium services the WBD merger will close or what its post-close value will be and topics. Analysts might revise their ratings update this score on at least a quarterly basis readers... Shop Pay is an innovative payment solution developed by Shopify represent all deposit... Of experience executing mergers CEO David Zaslav took charge of Warner Bros into a digital... Supermarket the brands are also rivals in the streaming industry as the smaller players combine their resources take! Get exclusive ideas and guidance to navigate any climate % of its balance sheet is trading at a.!
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