Legacy media companies will have a tough road to navigate in the streaming era, and one Wells Fargo analyst believes Warner Bros. Discovery Inc. You may be leaving billions of dollars in revenue on the table by not making a single strategic move.
Companies with their own media content face tough decisions when they figure out whether they should go all-in on their streaming services or look to monetize their programming in other ways. warner Bros Discovery WBD,
She is experimenting with putting some of her content on Netflix NFLX,
And other services, but Wells Fargo's Stephen Cahall wonders whether the company should dig deeper.
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Specifically, it is believed that Warner Bros. Discovery is missing 'billions of untapped things'. [revenue] potential” by not shipping “high profile titles” including “Game of Thrones,” “The Sopranos” and “Friends” to other streaming companies.
There's a trade-off, of course, as such a move “would come at the expense of maximum engagement,” up to 27 minutes spent daily on Warner's streaming service. “Management is caught between expansion [direct to consumer] “And reducing debt through licensing deals,” Cahall added.
He downgraded Warner Bros. stock. Discovery to equal weight from overweight on Monday, while also lowering its price target to $12 from $16. Cahall said he is moving to the margin on the stock until he sees “a better view of a sustainable recovery in revenue/earnings, and risk-free consensus estimates.”
WBD stock was down 3% in afternoon trading.
In Cahall's view, there is uncertainty about Warner Bros.'s earnings power. Discovery, which can hinder multiple stocks' upside opportunities.
“[W]“We now acknowledge that linearity represents a larger headwind to WBD multiples than we expected, and debt reduction has not been as robust with lower earnings expectations,” he wrote. “While HBO content remains strong, Max's scale is not driving earnings reversal.”
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