Stock Story -
What Happened: Shares of global entertainment and media company Warner Bros. Discovery (NASDAQ:WBD) jumped 6.6% in the morning session after the Financial Times reported that the company is exploring strategic options, including "selling assets or splitting its Max streaming service and movie studio businesses from its legacy TV networks." According to the reports, having the TV business handle the company's debt load will leave management with the option to explore more ways to accelerate growth in the fast-growing streaming & studio business. Such a move also provides more clarity to investors struggling to invest in both operating segments under a single parent.
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What is the market telling us: Warner Bros. Discovery's shares are somewhat volatile and over the last year have had 20 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 5 months ago, when the stock dropped 11.5% on the news that the company reported fourth-quarter results with revenue, operating margin, and EPS falling short of Wall Street's estimates, driven by weak performance in its Studio segment (revenue dropped 17% year on year and significantly missed estimates). Its Network segment also saw a 9% drop, but its results were in line with analysts' expectations.
The only segment that grew was its Direct-to-Consumer (DTC) business (3% year-on-year growth). That was thanks to a 51% increase in DTC advertising revenue, which mostly came from Max's (formerly known as HBO Max) ad-supported tier. Overall, the results could have been better.
Warner Bros. Discovery is down 24.7% since the beginning of the year, and at $8.76 per share it is trading 39.4% below its 52-week high of $14.47 from August 2023. Investors who bought $1,000 worth of Warner Bros. Discovery's shares 5 years ago would now be looking at an investment worth $280.49.
