After years of predictability in the streaming market as Netflix (NASDAQ: NFLX) mainly dominated, the industry has now become a cut-throat market where only the companies with the most engaging content succeed. Discovery of Warner Bros.‘s (WBD 3.62%) streaming efforts preceded the company’s founding, with WarnerMedia launching HBO Max in May 2020 under AT&T (NYSE:T) and Discovery+ landing on the scene in January 2021.
Warner Media merged with Discovery in April 2022 to form Warner Bros. Discovery. The company’s shares have plunged nearly 48% since then, as merger and restructuring costs have taken significant hits to earnings. However, the company has promising assets that could make its shares a buy for investors willing to hold onto them for the long term.
A long-term investment
Warner Bros. Discovery CEO David Zaslav has spooked investors into 2022, doling out a seemingly endless series of budget and content cuts. The cuts included the closure of several international productions, the cancellation of a nearly complete DC movie after a $90 million investment, multiple layoffs, and the abandonment of the CNN+ streaming service after a month of service. As a result, shares of Warner Bros. Discovery fell significantly, falling 11.7% in August alone.
To make matters worse, the entertainment company’s second-quarter revenue of $9.8 billion showed a 1% year-over-year decline along with a net loss of $3.4 billion. However, it’s not all bad news for Warner Bros. Discovery. Most of its losses stem from restructuring costs that won’t last forever, and the company has paid down $6 billion of debt since April, despite losses in revenue.
Despite fargo wells (New York Stock Exchange: WFC) revised its recommendation from “buy” to “hold” on Warner Bros. Discovery shares after a disappointing second quarter, the bank’s price target of $19 is still 46% higher than its price on September 9. This means that investors could have the opportunity to buy the shares at a bargain price now and reap the rewards in time.
Also, as streaming stocks go, there is no question that Warner Bros. Discovery stock offers the best value when priced against subscribers, especially when compared to considerably more expensive Netflix and Netflix. walt-disney (New York Stock Exchange: DIS). It will take time for the company to complete its restructuring and get on the market, but Warner Bros. Discovery will likely find its footing in time.
Warner Bros. Discovery’s greatest strength is its assets in HBO Max, Discovery+ and its rich library of content. According to data from Antenna, HBO Max retained a 7% share of all US premium streaming subscriptions for four consecutive quarters, from Q3 2021 to Q2 2022, while Netflix passed 30%. to 26% in the same period. During the four quarters, Discovery+ also increased its share from 3% to 4%.
The company’s content has also been showing its strength in recent weeks, with the launch of game of Thrones cleave house of the dragon becoming the most-watched premiere in HBO history, reaching 9.986 million viewers across linear and streaming platforms in the US. Even more impressive, the show is apparently stealing ratings and viewers from Amazon‘s (AMZN -1.77%) Lord of the Rings cleave the power rings The two fantasy shows, both based on insanely popular intellectual property, go head to head every week as they each release a new episode.
As it is, the public has given the rings of power a 39% score on Rotten Tomatoes, while Warner Bros. Discovery’s house of the dragon It has a score of 85%. Also, according to Whip Media, house of the dragon got 51% more viewers than the rings of power in its three-day post-debut window. It also works in favor of Warner Bros. Discovery the fact that house of the dragon cost $200 million to produce, while the rings of power it cost Amazon $465 million, showing that WBD is getting a lot more for its money.
Should You Buy WBD Stock?
Warner Bros. Discovery CFO Gunnar Wiedenfels defended the company’s recent content cuts in a Bank of America conference on September 8. Wiedenfels explained that “[T]Course corrections” and “making changes quickly” were the result of not agreeing “with the path WarnerMedia was on. And a framework for assessing potential from a financial perspective.”
Wiedenfels’ comments are positive as the company moves into its next phase, successfully merging HBO Max and Discovery+ into a profitable streaming service. Six months later, Warner Bros. Discovery has made significant and sometimes jarring alterations to its business, but its lucrative assets suggest it won’t be idle forever. It may take several years, but if you’re willing to wait, the stock could be a winner in the long run.
Bank of America is an advertising partner of The Ascent, a Motley Fool company. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. dani cook has no position in any of the mentioned stocks. The Motley Fool has positions and recommends Amazon, Netflix and Walt Disney. The Motley Fool recommends Warner Bros. Discovery, Inc. and recommends the following options: $145 long calls in January 2024 at Walt Disney and $155 short calls in January 2024 at Walt Disney. The Motley Fool has a disclosure policy.