Warner Bros. Discovery gains after box office hits, streaming gains power Q2 earnings

Warner Bros. Discovery (NASDAQ:WBD) pushed higher in early trading on Thursday after posting a mixed second quarter earnings report that featured revenue growth of 1.0% to $9.81 billion and a consensus-beating EPS mark of $0.63.

The media giant noted that it made substantive progress against each element of its strategic attack plan by returning studios to industry leadership, scaling HBO Max globally, and optimizing the Global Linear Networks segment. “Together, this array of success will help establish both Warner Bros. and Discovery Global as two strong and sustainable independent entities as we proceed towards our planned separation,” highlighted the company.

The Studios segment saw revenue soar 55% from a year ago to $3.80 billion. TV revenue increased 115% ex-FX, primarily driven by higher intercompany content licensing due to the timing of renewals. Theatrical revenue increased 38% ex-FX as a result of higher box office revenue, partially offset by lower content licensing. The increase in box office revenue was primarily due to the strong performance of A Minecraft Movie, Sinners, and Final Destination: Bloodlines in the quarter. Notably, the company expects the momentum to continue and projects that the segment will generate at least $2.4 billion of adjusted EBITDA for the full year, which was noted as representing a substantial step toward the goal of over $3 billion in the studios segment adjusted EBITDA.

Revenue from the global linear networks segment fell 9% to $4.80 billion. Adjusted EBITDA for the segment fell 24% to $1.51 billion. Distribution revenue decreased 7% ex-FX, driven by a 9% decrease in domestic linear pay TV subscribers, partially offset by a 2% increase in domestic affiliate rates. Additionally, distribution revenues were negatively impacted by lower international affiliate rates and subscriber declines.

In the streaming segment, global streaming subscribers were up to 125.7 million, an increase of 3.4 million global subscribers vs. Q1 and ahead of the consensus estimate for 2.4 million adds. Subscriber-related revenues increased 10% ex-FX compared to a year ago. Global streaming ARPU decreased 11% ex-FX to $7.14, primarily attributable to growth in lower ARPU international markets and an 8% decrease in domestic streaming ARPU to $11.16. The decrease in domestic streaming ARPU was primarily driven by broader wholesale distribution of HBO Max Basic with Ads.

On the balance sheet, Warner Bros. Discovery (NASDAQ:WBD) ended Q2 with $4.9 billion of cash on hand, $35.6 billion of gross debt, and a 3.3X net leverage mark.

On Seeking Alpha, analyst Max Greve noted that the WBD results benefitted from a strong movie slate performance compared to a disastrous Q1, but Warner is neither as weak as it looked then nor as strong as it looks now. “Streaming strength was largely offset by an accelerating decline in Linear Networks, streaming growth in the US has all but stalled, and future international growth will have much lower ARPU,” he added. Greve said there are no major red flags from the report, but also nothing to reassure investors on the weak points of the stock.

Shares of Warner Bros. Discovery (NASDAQ:WBD) were up 1.4% in premarket trading to $12.97 vs. the 52-week range of $6.64 to $13.87.