Warner Bros. Discovery (WBD) released first-quarter results before the bell on Thursday, with both revenue and bottom line revenue falling short of expectations. Free cash flow soared amid aggressive cost-cutting efforts, but the company's linear TV business continued to decline.
Revenue was $9.96 billion, below the Bloomberg consensus estimate of $10.27 billion. This is a 7% decrease compared to $10.7 billion in the first quarter of 2023. The company reported an adjusted loss per share of $0.40, compared with a loss of $0.44 in the year-ago period.
Shares fell more than 4% in pre-market trading as investors digested the results.
WBD, like other traditional media companies, has grappled with an unfavorable advertising environment. Network advertising revenue in the first quarter was down 11% year over year. The company reported network ad revenue of $1.99 billion, which fell short of Bloomberg's forecast of $2.01 billion.
The studio business also struggled, despite high-profile films like “Dune 2.” The segment was hobbled by the underperforming game, “Suicide Squad: Kill the Justice League,” especially when compared to last year's release, “Hogwarts Legacy.”
The segment's sales were $2.82 billion, down 13% year over year, excluding currency headwinds. This was below his expected $3.01 billion.
Free cash flow was a bright spot in the quarter, with that metric jumping to $390 million, beating the Bloomberg consensus estimate of $239 million. The company reported negative free cash flow of nearly $1 billion in the year-ago period.
The company's direct-to-consumer (DTC) streaming business also performed well. Max added 2 million subscribers in the quarter, beating the Bloomberg consensus estimate of 1.25 million and also beating the 1.6 million subscribers added in the first quarter of 2023.
Streaming ad revenue soared to $175 million, beating Bloomberg's $157 million estimate and up 70% from the $103 million the company reported in the year-ago period.
Additionally, the DTC segment's profit for the quarter was $86 million, an improvement of $36 million from the same period last year. In February, the company revealed that its direct-to-consumer streaming division was profitable for the full year 2023, with EBITDA of $103 million, compared to a loss of about $2.1 billion in 2022.
Despite the profitability hurdles, Wall Street analysts have cited several tailwinds heading into the second half of the year. That includes WBD's upcoming sports streaming partnerships with Disney (DIS) and Fox (FOXA), as well as its recently launched Max streaming service in overseas markets. The United States, including Latin America and Europe.
And on Wednesday, WBD and Disney announced that a bundle of Disney+, Hulu and Max streaming services will be available in the U.S. starting this summer. Customers can sign up for packages on any of the three platforms, with or without ads.
Investors have been keeping an eye on future developments regarding NBA media rights since a Wall Street Journal report said the company was at risk of losing NBA media rights to rival NBCUniversal (CMCSA). ing.
WBD CEO David Zaslav, speaking at the Milken Institute's annual conference in Beverly Hills on Monday, did not elaborate on the status of ongoing discussions.
“We continue to have constructive negotiations with the NBA,” he said. “It's a great league. The TNT team is doing a great job. And we love the NBA.”
Separately, the company is reportedly aiming to further reduce costs and further increase streaming fees. The cost-cutting plan could include layoffs after WBD cut 2,000 jobs over the past year, according to Bloomberg. The company did not respond to Yahoo Finance's request for comment.
WBD is also at the center of M&A negotiations as its two-year post-merger lock-up period officially ends. Zaslav declined to discuss whether Milken is interested in acquiring companies like Paramount (PARA), which it is currently considering.
“Paramount is a great company. We have a lot of great content companies. For us, our goal is to [do] We do the best we can with the business we have,” he said. You need to know what everyone else is doing and learn from it, but ultimately you can be successful if you use the assets you have to your advantage. ”
alexandra canal I'm a senior reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, Email alexandra.canal@yahoofinance.com.
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