In This Article:
We came across a bullish thesis on Warner Bros. Discovery, Inc. (WBD) on High Growth Investing’s Substack by Stefan Waldhauser. In this article, we will summarize the bulls’ thesis on WBD. Warner Bros. Discovery, Inc. (WBD)'s share was trading at $10.69 as of Dec 20th.
A movie theater auditorium filled with an audience enjoying a blockbuster film.
Warner Bros. Discovery (WBD) has reported its first net profit since the Warner Media-Discovery merger, marking a significant milestone for the company. This development was followed by two strategic announcements that position WBD for a higher valuation. First, the expansion of its partnership with Comcast secures long-term agreements, ensuring WBD’s content remains available to Comcast’s Xfinity customers in the U.S. and Sky customers in Europe. These agreements include ad-supported versions of Max and Discovery+ integrated into Comcast’s platforms, providing WBD with a substantial user base and additional revenue streams. Moreover, the collaboration resolves ongoing legal disputes, including one over the rights to the future Harry Potter series, and guarantees higher per-subscriber fees for WBD content, providing stability after losing NBA rights.
Simultaneously, WBD unveiled a new corporate structure set to take effect by mid-2025. This restructure separates its legacy TV business, Global Linear Networks, from its growth-oriented Streaming & Studios division. The legacy segment will focus on maximizing cash flow to reduce debt, while the streaming and studios arm, encompassing Max and the entertainment studios, aims to compete directly with Netflix. With projected 2025 revenues of $23 billion, this division is expected to be a significant growth engine. By comparison, Netflix’s revenue is anticipated to reach $44 billion, but Netflix's enterprise value is more than six times higher than WBD's, highlighting the valuation disparity.
This restructuring creates the conditions for a potential spin-off of the legacy TV business, akin to Comcast’s recent actions, further aligning WBD's structure with modern media industry trends. The standalone Streaming & Studios division could emerge as a true challenger to Netflix, particularly as WBD’s Max expands into new markets and addresses password-sharing issues, a growth lever Netflix has already exhausted.
While challenges remain, particularly WBD’s reliance on cash flow from the shrinking linear networks to manage its debt, the restructuring represents a preparatory step for transformative moves, such as the potential sale or spin-off of the legacy division. Led by experienced management, WBD has demonstrated its ability to drive profitability and growth, positioning itself as a leading player in an increasingly digital media landscape. With these changes, WBD shares offer a compelling opportunity for long-term investors, as the company’s valuation remains significantly discounted relative to its peers.