Warner Bros. Discovery (WBD) has been one of the worst-performing media stocks this year, facing numerous headwinds. It has dropped by over 31% this year, while popular American indices like the Nasdaq 100, S&P 500, and Dow Jones surged to a record high.
Top WBD headwinds
Warner Bros. Discovery has faced a few major challenges this year. First, the cord-cutting trend has continued, with millions of Americans moving away from cable subscriptions.
As a result, most cable companies have reported slow revenue growth in the past few quarters. For example, Charter Communications, a leading cable company, reported revenues of $13.6 billion, a small increase from the same period last year.
Other cable companies like Comcast, Cox Communications, and Altice have reported significantly weak results.
The cable industry is a notable one for a company like Warner Bros. Discovery because of its large television business. It owns some of the most iconic television brands in the US like CNN, Food Network, Oprah Winfrey Network, and Discovery.
Warner Bros. makes substantial sums of money from cable companies, which pay it for providing channels to customers.
Warner Bros. Discovery also lost major NBA sporting rights to Amazon, which could hurt its streaming business. It has sued the NBA for that but most analysts believe that, as the rights holder, NBA has a strong case.
Additionally, the company is going through the challenge of a weaker advertising environment as companies prioritize cost savings and other advertising channels like social media.
Netflix competition and growth
Warner Bros. Discovery has placed a big bet on the streaming business, where it hopes to become a major player in the industry.
Its primary solution is Max, one of the largest streaming solutions in the industry. The challenge, however, is that its growth has been significantly slower than other firms in the sector.
For example, Netflix’s revenue continued growing in the second quarter as it added over 5 million new members. It now expects that its annual revenue will jump to over $45 billion, helped by its subscription and advertising business.
Netflix’s performance means that it has won the streaming battle and that companies like WBD and Paramount will struggle to catch up.
The most recent results showed that Warner Bros. Discovery’s direct-to-consumer business is not doing well. Its DTC subscribers rose by 3.6 million in the second quarter, while its revenue dropped by 5% to $2.5 billion.
The DTC revenue fell mostly because of the 70% drop in content revenue. Advertising revenue in DTC rose by 98%, while its distribution segment was largely flat. The segment had an adjusted EBITDA loss of over $107 million.
Warner hopes that its streaming solution will continue doing well, helped by international expansion. It added more countries recently like Malaysia, Singapore, Thailand, and Hong Kong.
Warner Bros. earnings ahead
The next important catalyst for the Warner Bros. Discovery stock will be its earnings, which are set to happen on November 7.
WBD has a long history of missing analysts’ estimates, meaning that this trend may continue. Analysts expect that its revenue dropped by 1.50% in the third quarter to $9.83 billion.
Annual revenue is expected to drop by 2.90% to $40.1 billion, followed by $40.7 billion next year.
These results will provide more information on the trends in advertising and its direct-to-consumer business.
Analysts are mostly neutral on Warner Bros as they assess its performance. The most bearish analyst is from Bernstein, who downgraded the firm from outperform to market perform in August.
Other analysts at Needham, Goldman Sachs, Benchmark, and Rosenblatt have all maintained a neutral stand on the firm. The average stock estimate is $10.43, 34% higher than the current level.
Warner Bros. Discovery technical analysis
The daily chart shows that the WBD stock price has been in a strong downtrend in the past few months. It has formed a descending channel since March 2023 and is now slightly below its upper side.
WBD is consolidating at the 50-day and 100-day Exponential Moving Averages (EMA). The Relative Strength Index (RSI) and the MACD indicators have moved to the neutral levels.
Most notably, the stock has found a strong bottom at $6.92, where it failed to move below on June 18, August 12, and September 11.
Therefore, with so many negatives baked in, there is a likelihood that the stock will stage a comeback before or after its earnings. We have seen several embattled companies like PayPal and Walgreens Boots Alliance do that recently.
More gains will be confirmed if the Warner Bros. Discovery stock rises above the key resistance point at $8.83, its highest point in July and September this year, and its lowest point in December last year. If this happens, it could surge to the next resistance level at $12.67, its highest point in December.
Read more: Warner Bros (WBD) stock price comeback could be epic
The post Warner Bros stock analysis: WBD has bottomed, buy the dip appeared first on Invezz
Enter Your Information Below To Receive Trading Ideas and Latest News
Your information is secure and your privacy is protected. By opting in you agree to receive emails from us. Remember that you can opt-out any time, we hate spam too!
By 