The shares of Warner Bros. Discovery closed under $10 on Wednesday, the lowest level since the merger closed in April.
The decline continues a decline triggered by Warner Bros.’ third-quarter earnings report. Discovery on November 4. While the newly merged company revealed an increase in subscribers for HBO Max and Discovery+, WBD missed Wall Street’s revenue expectations, in part due to an 11% drop in ad revenue, which the company attributes to the difficult macroeconomic environment.
“Macro challenges are hitting WBD in the midst of a major restructuring and it’s fueling uncertainty,” Wells Fargo analyst Steven Cahall wrote last week. He noted that while WBD could see greater earnings growth from the merger, the company’s high gross debt and macroeconomic environment “make everything more fragile.”
The stock decline also underscores Wall Street’s growing emphasis on profit, rather than continued growth. Shares of Disney fell 13% on Wednesday after the company added subscribers but nearly doubled its streaming losses in its fourth quarter results on November 8.
WBD CEO David Zaslav has been at the forefront of this earnings push, saying last week that “the great experiment of creating something at all costs is over” and raising his savings target to 3 .5 billion dollars against 3 billion dollars. But some on Wall Street still question the economics of the Discovery and WarnerMedia merger and Zaslav’s ability to deliver on his cost-cutting plans.
“How many balls can a company successfully juggle at once?” analysts at MoffettNathanson asked in a post-earnings analysis from Warner Bros. Discovery. Analysts noted that in addition to combining the two legacy companies, Zaslav is looking to reduce the company’s leverage from more than five times to less than three times over the next two years, relaunch an HBO Max/ Discovery+ combined and determining how to balance licensing content. to third parties while maintaining enough exclusive content on its streaming platforms to retain and grow subscribers.