Warner Bros. Discovery fell short of analyst expectations in the fourth quarter, reporting lower-than-anticipated profit and revenue figures, chiefly due to a decline in advertising and a lack of free cash flow guidance for 2024. Following the release of the report, Warner Bros. Discovery shares tumbled by 12% during early trading on Friday.
In the fourth quarter, the company recorded a net loss of $400 million, or 16 cents per share, in comparison to a loss of $2.1 billion, or 86 cents per share, in the same period the previous year. Warner Bros. Discovery experienced a 14% decrease in linear television advertising revenue, excluding foreign exchange adjustments, along with a 4% decline in actual distribution revenue.
During the fourth-quarter earnings conference call, Chief Executive Officer David Zaslav acknowledged the challenges faced by the business, highlighting the ongoing disruptions in the pay TV and linear advertising ecosystems. Zaslav emphasized the need for innovative solutions to address these challenges.
The company’s performance for the quarter ended Dec. 31, compared to analysts’ estimates, as reported by LSEG (formerly Refinitiv), is as follows:
– Loss per share: 16 cents vs. expected 7 cents
– Revenue: $10.28 billion vs. expected $10.35 billion
Adjusted EBITDA for the fourth quarter was $2.5 billion, down 5% from the previous year, excluding foreign exchange impacts, primarily due to lower studio revenue resulting from strikes by the Writers Guild of America and the Screen Actors Guild-American Federation of Television and Radio Artists. Studio revenue plummeted by 17% to $3.17 billion, with adjusted EBITDA for the unit decreasing by 29% to $543 million.
Zaslav expressed concerns about the underperformance of the studio, particularly towards the end of the year. Regarding free cash flow, Warner Bros. Discovery generated $3.31 billion in the fourth quarter and concluded 2023 with $6.16 billion in free cash flow, marking an 86% increase from the previous year.
Despite this, the company anticipates free cash flow challenges in 2024 due to increased content spending following the resolution of the writers’ and actors’ strikes in the previous year. Chief Financial Officer Gunnar Wiedenfels refrained from providing specific guidance for 2024, citing potential factors such as the Olympics, higher Max revenue spending, and uncertainty in annual EBITDA.
Warner Bros. Discovery prioritized debt reduction, paying down $1.2 billion in debt in the quarter and $5.4 billion in debt throughout 2023, although it still retains $44.2 billion in gross debt after settling $12 billion in debt over the past two years.
The company’s flagship streaming service, Max, achieved profitability in 2023, with full-year adjusted EBITDA reaching $103 million. Zaslav’s strategic efforts to curtail content spending have contributed to Max’s profitability ahead of its competitors. Warner Bros. Discovery reported a 2% increase in global direct-to-consumer subscribers, totaling 97.7 million, compared to the previous quarter.
Looking ahead, Warner Bros. Discovery expects Max to remain profitable in 2024, despite anticipated losses in the first half of the year due to increased content spending, with a projected EBITDA of $1 billion for 2025.
Additionally, the company plans to expand Max’s advertising tier to 40 international markets by the end of 2024. Zaslav did not disclose pricing details for the upcoming sports joint venture with Disney and Fox but emphasized its focus on targeting the 60 million U.S. households currently not subscribed to cable.
The service, slated to launch in fall 2024, aims to simplify access to playoff games for major sports leagues through automatic streaming redirection. Warner Bros. Discovery is in negotiations with the NBA for renewed media rights, maintaining a disciplined approach to investments in sports rights based on the company’s internal assessments of their value.
