WBD’s tone on earnings call suggests openness to M&A and spinoffs; shares rise (update)

Warner Bros. Discovery (NASDAQ:WBD) posted mixed results for its third quarter on Thursday and the media conglomerate executives continued to look for ways to improve value for its best-in-class assets.

Shares of the company extended their premarket gains and were up nearly 16% at $9.67 after the opening bell on the Nasdaq.

On the earnings call with analysts, the company executives suggested that they were looking at options for their portfolio of businesses to enhance shareholder value, which implies that it could be actively exploring initiatives for M&A and spinoffs.

CEO David Zaslav, on the same call, also hinted that a second Trump presidency will be helpful for M&A activity.

“We continue to focus on executing our strategy and as part of this, examining every angle and possible path to realize the longer-term value-creation opportunity we see ahead for Warner Bros. Discovery,” WBD executives said on the call.

In Q3, Global DTC subscribers were 110.5M, up 7.2M subscribers from the sequential quarter. The consensus estimate is 109M. Global DTC ARPU was $7.84, up 1% sans the forex impact.

“Max delivered 7.2 million net subscriber adds, the strongest quarterly gain since the platform’s launch, resulting in healthy subscriber-related revenue growth and meaningful progress toward achieving our 2025 Direct-to-Consumer segment financial objectives. Likewise, our recently announced strategic partnership with Charter Communications, for both linear network distribution and bundling of Max, not only reinforced the value of our content portfolio but represented our willingness to work with our partners to enhance the consumers’ experience as our industry undergoes transformation,” Zaslav said in a statement.

Revenue at Studios fell 17% to $2.68B, hurt by lower box office collections on Beetlejuice and Twisters in the current year, which was more than offset by the stronger performance of Barbie in the prior year, WBD said. The segment also saw Games revenue decline 31%.

Revenue from the Networks segment rose 3% to $5.01B, and the Direct-to-Consumer segment was up 8% to $2.63B.

Free cash flow slid 69% to $632M in Q3, weighed by higher net content investment, in part due to the prior year impact from the WGA and SAG-AFTRA strikes, lower operating profits, and unfavorable working capital, including the impact of the Olympics, the company said.

At the end of the quarter, the company had $3.5B in cash on hand, $40.7B in gross debt, and 4.2x net leverage.

WBD swung to a net income of $141M for the three months ended September 30, which includes pre-tax acquisition-related expenses of $1.6B, compared to a net loss of $407M in the same period last year.

On a per-share basis, it earned 5 cents, while analysts were expecting the New York-based company to lose 9 cents.

Revenue fell 4% to $9.62B vs. the Bloomberg estimate of $9.81B and were down 3% excluding the impact of foreign exchange.