Disney vs. Warner Bros. Discovery: A Tale of Two Earnings

Wednesday’s earnings calls offered a stark contrast between two massive entertainment giants moving in different directions.

Warner Bros. Discovery shook Hollywood with a staggering $10 billion quarterly net loss, including a $9.1 billion write-down on the value of its ailing linear TV assets.

This was a sharp divergence from Disney, which earlier in the day celebrated a quarterly profit of $47 million for its combined direct-to-consumer business. Pixar’s “Inside Out 2” also delivered a major boost to Disney’s studio segment, averting possible disaster.

While Disney seems to have turned a corner in its quest to rival streaming leader Netflix, Warner Bros. Discovery, led by its challenged CEO David Zaslav, faces a crucial need for strategic realignment. This might include selling the company or dividing its assets into separate entities.

“Last summer, ‘Barbie’ brought back pink, but now Warner is seeing nothing but red,” said Jamie Lumley, an analyst at Third Bridge. “A massive write-down and declining revenues across all major segments have alarm bells ringing at the beleaguered media giant as Warner Bros. Discovery struggles to find a clearer path forward.”

Zaslav’s time to make the two-year-old Warner Bros. Discovery successful is running out. The company’s recent misstep, failing to acquire one of the NBA’s $76 billion in media rights packages, was a “triggering event” that led to a one-time impairment charge, significantly lowering the value of its TV assets, said WBD CFO Gunnar Wiedenfels.

However, missing out on the NBA rights wasn’t the only issue. Weak linear advertising and the discrepancy between WBD’s book value and market capitalization, exacerbated by its depressed stock price trading below $8, also forced the company to make drastic decisions.

WBD shares have plummeted 47% in the past year and dropped 10% in after-hours trading following the announcement. The $10 billion net loss marks nearly an eight-fold decline from last year. The company also reported a 6% revenue drop to $9.7 billion, falling short of analysts’ expectations.

While achieving streaming profitability remains a core goal for traditional Hollywood studios, WBD’s heavy reliance on struggling cable TV markets—comprising 51% of its assets in 2023 compared to Disney’s 13%—is a significant drag on its performance.

“Even two years ago, market conditions for legacy media companies were different, and this impairment reflects that and better aligns our carrying values with our future outlook,” Zaslav said.

Zaslav’s attempt to secure NBA rights further hurt the stock price, and his decision to sue the basketball league for breach of contract might jeopardize future sports partnerships.

Despite the turmoil, Zaslav remains committed to expanding Max to more international markets, now reaching 65, and forecasts full-year DTC profitability. “We are only just beginning to unlock the global value opportunity that exists,” he said.

Wiedenfels indicated that all strategic options remain on the table, emphasizing that the focus extends beyond mere operational management. Zaslav highlighted HBO’s upcoming slate, which includes “The Batman” spin-off series “The Penguin,” the “Dune” spin-off series “Dune: Prophecy,” and new seasons of “The White Lotus,” “The Last of Us,” and a new “Game of Thrones” spin-off, “A Knight of the Seven Kingdoms.”

Warner Bros. plans to release two major films in the fall, with Tim Burton’s “Beetlejuice Beetlejuice” projected for a $75 million-plus opening in September, followed by “Joker: Folie a Deux” in October, the sequel to the first R-rated film to gross $1 billion globally, starring Lady Gaga alongside Joaquin Phoenix.

Looking to 2025, Warner Bros.’ slate will feature Bong Joon-ho’s “Mickey 17,” a secret project from “Creed” and “Black Panther” duo Ryan Coogler and Michael B. Jordan, and “Minecraft,” a bid to capitalize on the rising trend of video game movies.

However, the highest stakes are placed on “Superman,” which aims to reboot the DC Cinematic Universe and potentially bring billions in revenue through theaters, streaming, and other channels.

Meanwhile, Disney’s streaming milestone came not from its entertainment platforms Disney+ and Hulu, but through ESPN+ profitability, achieving combined DTC profitability a quarter ahead of schedule.

“We have made significant progress,” said Disney CFO Hugh Johnston. “Not long ago, we were losing a billion dollars a quarter, and now we are making money.”

Yet, Disney faced challenges as well. Its Experiences division, usually more than a third of overall revenues, reported a 3% operating loss. Executives warned of further summer softness in the parks business due to lower demand in China and reduced European travel because of the Paris Olympics, which concerned some Wall Street analysts.

David Joyce of Seaport Research Partners downgraded Disney to neutral, citing slower parks growth and potential DTC profitability that might not meet fiscal 2025 expectations.

Thomas Monteiro, a senior analyst at Investing.com, said the earnings report indicates that Disney has been preparing for economic downturns by adopting a more resilient and less consumer-centric revenue strategy. He noted, “Disney continues to be underappreciated by a market that expects faster and more innovative growth amidst the AI frenzy.”

Still, Disney’s next quarter results are expected to improve, with box office receipts from “Inside Out 2” and the blockbuster success of “Deadpool & Wolverine,” likely adding a few billion dollars to its balance sheet.

Additional reporting by Jeremy Fuster.

Source: TheWrap