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 (WBD) CEO David Zaslav announced plans to combine HBO Max and Discovery+ into one streaming service. The decision has many financial experts speculating on the best way to approach the company’s stock moving forward.
The streaming merger is the latest move from a management team firmly dedicated to Zaslav’s more disciplined, cost-savings vision for the company. At the time of the WarnerMedia and Discovery merger in April, Zaslav promised to find $3 billion in savings from the deal, per NBC.
Zaslav hasn’t been shy in making changes that align with the Warner Bros. Discovery strategic shift. 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. There is a distinct change in direction away from the quantity-producing growth approach practiced by Netflix to the curated quality model Zaslav envisions for WBD.
WBD quickly axed CNN+ shortly after the April merger (although some of CNN’s 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!: Holiday Haunt” — have been shelved. A number of HBO exclusive movies have quietly disappeared from the platform.
Merger Between HBO Max and Discovery+ to Roll Out Summer 2023
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.
As TIME reports, following Netflix’s 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.
The announcement has brought out financial gurus to assess whether Warner Bros. Discovery is now a buy, hold or sell.
Is Warner Bros. Discovery a Buy, Hold, or Sell?
Prior to WBD’s quarterly report announcement, Barron’s reported that analysts at Goldman Sachs reinstated a “buy” rating and price target of $22 on Warner Bros. Discovery stock. Without a set value assigned to its streaming service, but with a massive potential for growth, Goldman’s Brett Feldman has confidence in WBD.
In a research note to investors, Feldman said that the merged Warner Bros. Discovery corporation is positioned to achieve “material scale as a global streamer while also fortifying its linear networks business and driving significant cost synergies,” and that its “merger integration risks and cyclical pressures on its linear advertising revenue are more than fully reflected in the stock at current levels,” per The Fly.
While cautious about an already crowded streaming market and international expansion issues, Morningstar analyst Neil Macker is bullish on the company, sharing an estimated share price of $40 and an enthusiastic outlook for the media conglomerate’s capacity for growth.
“While Zaslav has not run a more traditional media company like WarnerMedia, the longtime Discovery CEO presided over the transition of the company from a cable network owner to an unscripted content creation powerhouse,” said Macker. “We expect that Zaslav will use his experience to help Warner Bros. Discovery transition into a direct-to-consumer powerhouse by focusing further investment in content and the user experience, which has garnered complaints on both HBO Max and Discovery+.”
Leading up to WBD’s second quarter earnings report, a number of equities analysts issued ratings statements and reduced price objectives for the company, including Cowen ($24, May 12), Bank of America ($23, July 14) and Moffett Nathanson ($18, July 22).
As of Aug. 5, MarketBeat lists Warner Bros. Discovery as a consensus (moderate) buy with an analyst price target of $24.79. Based on 14 ratings, nine analysts had WBD stock as a moderate buy, five rated it as a hold, and only one appraiser had the company as a sell.
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