Let the Downgrades Begin with Warner Bros. Discovery Stock

Let the Downgrades Begin with Warner Bros. Discovery Stock ...

The Warner Bros. Discovery stock might not be the ideal investment for your kids' college fund. Wells Fargo's analysts compared WBD stock to Netflix, and neither one is ideal.

Researchers at Wells Fargo dropped their rating for WBD stock from buy to hold on Friday, citing the same score as Netflix, which is recovering from two consecutive quarters of subscriber losses. The stock price objective for WBD stock has also been downgraded from $42 to $19. Shares closed under $15 on Friday, down 17 percent from the previous days close.

Researchers found that Warner Bros. Discovery customers are having a difficult time growing their streaming/direct-to-consumer (direct-to-consumer) businesses and generating income, without the added baggage of a major merger integration project.

We prefer more straightforward stories like [Disney] and [Paramount.] WBD is now a higher-level thinking, but it still has a long way to go as it navigates a brand-new route.

MoffettNathanson's media analysts maintained their previous hold rating and $18 stock-price target for the business, highlighting the company's $50 billion in debt, a tough economic environment, and unanswered questions about its strategic goals. In other words, they didnt have to make any changes because they already were.

WBD's price targets ranged from $16 to $25, and several other analysts kept their previous ratings; Goldman Sachs (also $24) liked the streaming-integration plan announced yesterday, while Cowen believes shares have dropped to their lowest level.

Warner Bros/courtesy Everett Collection / Everett Collection

WarnerMedia and Discovery would be merged into a single company after a few months, according to Steven Cahall at Wells Fargo, who got into a discussion during the event. The growing pains were evident.

Before they suggest investors buy Warner Bros. Discovery, there are a few things Cahall and Michael Nathanson (the Nathanson of MoffettNathanson) should consider. Like, join us in the 21st century and shift its focus from linear networks to streaming.

WBD's previous EBITDA forecast for 2023, which included interest, taxes, amortization, and amortization, was downgraded by about $2 billion. That shortage underscores WBD's growing dependence on linear cable networks, which are under increasing pressure in a declining pay television ecosystem, according to Wells Fargo. Networks account for over half of Warner Bros. Discovery's value, which means that the company is more sensitive to the linear ecosystem than its competitors.

The investment in streaming by media corporations is mainly about ensuring that they dont go bankrupt when traditional television does. Wells Fargo describes the Summer 2023 strategy to integrate HBO Max and Discovery+ into a single streaming service as feasible and ambitious, with a target of profitability and 130 million subscribers.

WBD's free, ad-supported streaming TV service, which Zaslav introduced on Thursday's call, is appealing to Wall Street. It's a good fit for those who are averse to paying for entertainment (the combined subscription service from WBD will not be cheap), and it might provide a way to shield itself from the pressures of cord cutting.

On Thursdays call, global streaming CEO JB Perrette said we currently license our library to others. However, we are still assessing how best to play this growing business.

WBD's analyst forecasts for WBD may be bleak, but there is still room for improvement, according to Wells Fargo. The company will likely be the #3 global player in terms of content prowess and DTC, behind Netflix and Disney.