The company finished the quarter with 96.1 million subscribers. Discovery, which has no dividend. Sign up for THR news straight to your inbox every day. Q1 operating profit and cash flow for WarnerMedia were clearly below my expectations. we also think that one of the big opportunities here is going to be churn reduction. distribution of Spinco common stock to eligible AT&T shareholders as of record date), which occurs prior to completion of the WBD merger. However, based on the stock's performance so far, it seems other shareholders have had different opinions about the value of the deal, including those who got shares without taking any action. We will not sort of chase aggressively behind subscriber growth. For a time, it seemed like Warner was a big dog, buying up companies like DC Comics, Six Flags, and Lorimar. In 2000, internet service provider America Online bought Time-Warner, Inc. to form AOL Time Warner, but when the dot-com bubble burst, that partnership dissolved quickly. Discovery (WBD) CEO David Zaslav announced plans to combine HBO Max and Discovery+ into one streaming service. Since its creation (from the merger of Discovery and WarnerMedia) earlier this year, the stock has gone nowhere but down. The blended average of the combined WBD valuation range with and without synergies is about $102.2 billion to $153.8 billion. AT&T Ex-Distribution Trading - AT&T shareholders can engage in "Ex-Distribution Trading" during the two-way trading period if they wish to only sell their right to AT&T RemainCo and retain their stock dividend pertaining to the WBD transaction. Making the world smarter, happier, and richer. Is DISCA stock a good buy after the AT&T merger news? Is this happening to you frequently? Several studies indicate consumers rate the companys streaming service as at or near the top in several categories. I wrote this article myself, and it expresses my own opinions. On a GAAP basis, analysts polled by FactSet expected Warner Bros. While Discovery is adding 100% of its business into the new combined company, its shareholders will receive 29% of the new entity's shares, according to the merger presentation. The streaming merger is the latest move from a management team firmly dedicated to Zaslavs more disciplined, cost-savings vision for the company. I wrote this article myself, and it expresses my own opinions. In fact, Amazon is the sole company with a share price gain over that time frame, and it lags the S&P by more than 15%. Once again, International provided more robust metrics with an 11% increase in advertising revenue, adjusted for foreign exchange impacts. -2.01% This array of content serves to attract and retain subscribers. (I update this score on at least a quarterly basis for readers.). Discovery merger, AT&T and Discovery Communications shareholders have decisions to make. Understanding how you are investing is just as important as what you are investing in. Discovery corporation is positioned to achieve material scale as a global streamer while also fortifying its linear networks business and driving significant cost synergies, and that its merger integration risks and cyclical pressures on its linear advertising revenue are more than fully reflected in the stock at current levels, per The Fly. What the Smartest Investors Know About Warner Bros. We currently are holding a limited-time sale with 10% off your first year! After all, there has been a more chaotic revolving door over in the HBO C-suite since the merger with AT&T, with lots of turnover and restructuring. I am a retail investor, with no formal training in investing. The thinking is that this could lead to a surge in subs when the two services are combined. Warner Bros. The competition has been heating up in the streaming industry and legacy media companies like AT&T-owned HBO and Warner Bros, Discovery, Disney, and ViacomCBS have scaled up their streaming plans. One is a relatively high rate of churn. There is currently no definitive answer to when the WBD merger will close or what its post-close value will be. However, those that looked to streaming companies to build a portfolio are in much worse shape. Discovery reported a fourth-quarter net loss of $2.08 billion, or 86 cents a share, after a profit of $38 million, or 8 cents a share, in the same quarter in 2021. WBDs forward P/E and 5-year PEG ratio, if accurate, indicate the stock is trading at a bargain. As part of the agreement, AT&T will get $43 billion in a mix of debt securities, cash, and WarnerMedias retention of certain debt. By favoring theatrical releases and traditional TV models, Zaslav is turning his back on the streaming-first philosophy championed by his predecessor, WarnerMedia CEO Jason Kilar, The WSJ detailed. Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services. Since the merger was structured so that AT&T would spin off its holding of WarnerMedia and then merge the company with Discovery, AT&T investors got shares of the new company without doing anything. I wrote this article myself, and it expresses my own opinions. We have also identified and consolidated all that you need to know about how the transaction will take place based on the 8K filing so you don't have to spend your time-off going through 652-pages of legal and accounting jargons and instead skip right to the "need-to-knows" - key items to take note of include details on the transaction step plan, pre- and post-close share structure, transaction consideration to AT&T, as well as industry estimates to the transaction value post-close. Discovery was word that DC could be restructured. And as I'm looking under the hood here again, CNN+ is just one example, and I don't want to go through sort of a list of specific examples, but there's a lot of chunky investments that are lacking what I would view as a solid analytical, financial foundation and meeting the ROI hurdles that I would like to see for major investments. The Motley Fool has a disclosure policy. If you have an ad-blocker enabled you may be blocked from proceeding. The Wall Street Journal this month reported that Warner Bros. Discovery Makes a Dramatic Strategic Shift, Up 57% and Climbing, This Stock Is Still a Bargain Buy in 2023. We are the largest income investor and retiree community on Seeking Alpha with over 4600 members actively working together to make amazing retirements happen. Under WBDWV Trading, AT&T shareholders will be able to sell their right to WBD shares distributed to them as a result of their AT&T share ownership as of the record date through the temporary Nasdaq ticker "WBDWV" beginning April 4th. Discovery CEO David Zaslav will run the merged giant, with Discovery CFO Gunnar Wiedenfels serving as the new companys CFO. Asked about the risk of future dividend cuts, Desroches said that the dividend is not only safe, but its size gives the company financial flexibility. On Friday, Discovery shareholders formally approved the mega-combination of the factual and lifestyle media powerhouse Discovery with AT&Ts entertainment arm. And right or wrong, management has made a decision to invest a lot of the incoming funds into a number of investment initiatives. However, most of the analysts rate the stock as a hold or some equivalent. These offers do not represent all available deposit, investment, loan or credit products. It's worth noting that these forecasts were before Discoverys merger announcement. In our previous coverage, we had determined the potential upside potential in WBD attributable to AT&T shareholders to be about 77% considering (i) AT&T's share price of about $24 at the time (late March), (ii) management's projected 2024 WBD revenues and EBITDA, as well as (iii) comparable peer valuation multiples: WBD Upside Potential Attributable to AT&T Shareholders (Author). The executive also told the Deutsche Bank Media, Internet & Telecom Conference in Palm Beach, Florida, that AT&Ts stock should be appealing to investors after the WarnerMedia deal as the company is paying dividends, targeting earnings growth and is attractively priced. Ahead of the Warner Bros. I seek a degree of safety in my investments by. That will simplify things a whole lot, both for the companies and their investors. Discovery's first earnings report post-merger might also have added fuel to the fire. The estimated transaction value takes into consideration the closing price of $25.37 per share for Discovery Series A common stock as of March 9th, multiplied by Discovery. $33 billion fair value attributable to WarnerMedia assets + $10 billion additional amount) funded by a combination of debt securities and cash from Spinco provided to AT&T. Lawrence Nga has no position in any of the stocks mentioned. Echoing our thoughts from the previous coverage, we believe the fast-approaching WBD spinoff will be a promising play for participating AT&T investors. Here is a stat that might surprise many readers: every stock listed above has underperformed the S&P 500 over the last three years by a wide margin. This might explain the initial fall in Warner Bros. As of Aug. 5, MarketBeat lists Warner Bros. The company posted a 5% growth in U.S. advertising and an 11% increase in distribution revenue due to Discovery+. Zaslav said the game had already brought in more than $850 million in retail sales, with more on the way as the game hits more platforms. However, we have taken additional consideration of the valuation sensitivity analysis performed by the WBD transaction advisors, Allen & Company and J.P. Morgan, as disclosed in AT&T's most recent 8K filing dated March 28th to further gauge the upside potential in WBD post-close. Discovery currently has 700 million shares outstanding, while 1.7 billion new shares will come to market as part of the transaction. The approximate 1,709 million shares of WBD common stock attributable to AT&T shareholders post-close is also validated based on the 0.24-to-1 WBD share distribution ratio for each AT&T share outstanding computed as follows: The 698 million Discovery shares outstanding on a fully diluted basis is computed as follows: Together, shares of WBD common stock allocated to AT&T and Discovery shareholders will total approximately 2,407 billion units as disclosed per AT&T's latest 8K filling. A merger rarely goes without hiccups, so while the dip in Warner Bros. However, the media merger has thus far been a Discovery. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). In other words, if an AT&T shareholder decides to sell an AT&T share under Ex-Distribution Trading between April 4th and the WBD transaction completion date, they will only be retaining rights to the WBD shares distributed to them as a result of their AT&T share ownership as of the record date (April 5th market close). With the steady hand of Zaslav now in command of more world-class media assets he can now deploy internationally, Discovery has gone from a small unscripted player to a scaled global behemoth across scripted, unscripted, and news content. AT&T shareholders are set to receive an estimated 0.24 share in the new company for each AT&T share held. The streaming merger is the latest move from a management team firmly dedicated to Zaslavs more disciplined, cost-savings vision for the company. Discovery Communications and its three share classes will no longer exist as the company, unlike AT&T, will fully be merged into Warner Bros. If you Jakub Porzycki / NurPhoto / Shutterstock.com. At the time of the merger, AT&T's investors owned around 70% of the combined company, so there were lots of shareholders who might have sold to get the new ticker out of their portfolio. We will not overspend to drive subscriber growth. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services. The company reported nearly $450 million in next generation revenue, a 55% increase over the prior-year quarter. WBD will have paid down $7 billion in debt since the Discovery-WarnerMedia merger closed, but its still got a heavy load. HBO Max and Discovery Plus will be merged into a single digital platform under Warner Bros. I am a retired law enforcement officer. Let the power of quality research drive your investment convictions. Hogwarts Legacy launched on Feb. 10. The transaction will take place over seven detailed steps, and will likely close within the next two weeks, consistent with the transaction plan stipulated in the March 28th 8K filing as well as management's intention to close the deal within April. David Nadelle is a freelance editor and writer based in Ottawa, Canada. With the WarnerMedia spinoff fast approaching, AT&T (NYSE:T) has uploaded a series of press releases last week detailing how the transaction will take place. The streaming media and telecom worlds were shaken Monday, when AT&T (T -0.63%) announced it would be spinning off its WarnerMedia division and combining it with Discovery (DISCA) (DISCK). More importantly, we believe 4Q is an opportunity for management to turn the page to 2023 and reset the narrative, BofA analysts said in a note last month. One of the analysts rates WBD as a sell. To ensure this doesnt happen in the future, please enable Javascript and cookies in your browser. My primary focus is on dividend bearing stocks. Management discussed a number of concerns to be addressed now that the merger is complete. A merger rarely goes without hiccups, so while the dip in Warner Bros. totaling approximately $42 billion received from a combination of bridge loans, term loan credit agreements, note issuances, and revolving credit agreements obtained or completed through commitments with JPMorgan Chase Bank, Goldman Sachs Bank, Goldman Sachs Lending Partners LLC, and "certain other financial institutions". But if I take a step back here and just look at, call it, the past 15 months for WarnerMedia sort of as a carve out-group, we're looking at more than $40 billion of revenue and really virtually no free cash flow. Madonna Breaks Silence on Death of Brother Anthony Ciccone: You Planted Many Important Seeds, Paramount CFO: Streaming Content Spending Could Come in Below $6B Target In 2024, BBC Journalism Union Members Vote in Favor of Strike. Its options had been the spinoff, in which AT&T stockholders will receive shares in the merged company in addition to their existing AT&T shares; a split-off, which would have allowed shareholders to choose between stock of AT&T and the new company; or some combination of the two. WBD was We will not launch any new markets for the time being. WBD Transaction Structure (AT&T 8K filing, with annotations by Author. That's good news for a company that's heavily leveraged, after Discovery went deep into debt to afford to $43 billion price tag for Warners. Discovery to report a loss of 35 cents a share, on revenue of $11.2 billion. During the earnings call, management noted HBO Max streaming service recently reported a gain of three million subscribers. These are high-margin services that AT&T needs to get right, and where it's up against stiff competition in the telecom space. Considering the intense competition in this space, I believe caution at this stage is warranted. Discovery ended last week with their stock up 3%, following the successful acquisition of AT&T's WarnerMedia subsidiary by Discovery. Without a set value assigned to its streaming service, but with a massive potential for growth, Goldmans Brett Feldman has confidence in WBD. Discovery (NASDAQ: WBD) when the stock went public last April. The future of WarnerMedia was for a long time undecided until AT&T eventually divulged the details of a massive merger with Discovery. Overall, the company revised adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to between $9 billion and $9.5 billion for 2022, down from the $10 billion forecast before the merger. WarnerMedias operating income declined 35% year-over-year. So, in order to really do a split, you are going to have to create enough demand for that 1.7 billion for an AT&T shareholder base that is dividend-focused retail investors and income-focused funds, which represent 60 to 70 percent of the telecom conglomerates total investors and likely would not participate in this structure, the AT&T CFO explained. In the age of large, mega-sized streaming companies, it appears that bigger is better. WBD currently trades for $18.88 a share. Discovery, Wall Street is turning its attention to the outlook for the new conglomerates stock that began trading on Monday under the ticker symbol WBD.. AT&T's shares were down 2.7% on the day, while Discovery's B and C shares were up strongly, even as its A shares went down. S&P rates WBDs debt as BBB-/positive, the lowest level of investment grade. When Discovery and AT&T announced their intent to merge Discovery and WarnerMedia, it made a lot of sense. After the next few quarters, investors will have a better sense of how things are playing out and whether the stock is one to hold onto. Make this your go-to guide to understanding stock charts. That same study revealed that when questioned regarding their level of satisfaction among SVOD services, HBOMax received the highest score. WBD, After combing through the additional information recently disclosed in AT&T's 652-page 8K filing pertaining to the transaction, we have better refined our estimates. The new entity will focus on streaming services. Billy Duberstein owns shares of AT&T, Discovery (C shares), and Netflix. AT&T is also still behind competitors in 5G deployment, and is up against stiff competition in the fiber broadband space. The new company, of which Discovery shareholders will own about 29%, should become more of a force in global streaming. pertaining to the WarnerMedia spinoff, the telecom giant also submitted a, to the SEC, covering every "nitty-gritty" detail from pro-forma historical WarnerMedia statement of operations that were not previously available, all the way down to key terms of the merger agreement with. ) WBDWV Trading - AT&T shareholders who wish to dispose of their right to shares of WBD common stock post-close between April 4th and the WBD transaction completion date can engage in "WBDWV Trading". we will continue to be very thoughtful about our spend. Many of the offers appearing on this site are from advertisers from which this website receives compensation for being listed here. Of that, $15 billion will be generated by direct-to-consumer services. I have no business relationship with any company whose stock is mentioned in this article. Please note that I am in the process of planning a subscription service with Seeking Alpha's Marketplace. Erik Khalitov/iStock Unreleased via Getty Images. Networks jumped 7% to $1.93 billion while International Networks registered 25% growth to $1.23 billion. The merger with Discovery has the above-stated benefits for AT&T, including significantly reduced debt. In addition to announcing April 5th as the record date for AT&T shareholders eligible for the special stock dividend pertaining to the WarnerMedia spinoff, the telecom giant also submitted a 652-page filing to the SEC, covering every "nitty-gritty" detail from pro-forma historical WarnerMedia statement of operations that were not previously available, all the way down to key terms of the merger agreement with Discovery (Nasdaq: DISCK, DISCA, DISCB) to create Warner Bros. With the 5G transition in full swing, the company can't afford to be distracted with the streaming media wars, paying down debt, and maintaining the dividend all at once. Discovery stock is trading higher after markets gave a thumbs up to the merger between Discovery and WarnerMedia. In February, the merger received approval from the U.S. Department of Justice, the key regulatory hurdle for the merger. 2023 The Hollywood Reporter, LLC. Discovery, they discovered that the previous management had been overly optimistic with their projection of Warner Bros. prospects. The resultant company, Warner Bros. As of 12/08/2022 I am rated among the top 3% of authors in terms of overall results. 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AT&T shares fell in pre-market trading and were down 4.3 percent to $24.40 as of 7:45 a.m. Discovery has over 15 million paying streaming subscribers globally, while HBO and HBO Max reportedly have 64 million subscribers globally. With over 40 individual picks yielding +7%, you can supercharge your retirement portfolio right away. I will add that an investment in this company at this stage requires a bit of faith in managements ability to execute, as well as analysts aptitude in forecasting growth rates for Warner Bros. The idea is that Warners has not been fully capitalizing on the brand's potential. 16 Million Approved for Biden Student Loan Forgiveness Plan Will Supreme Court Uphold? All Right Reserved. With the megamerger of Discovery and AT&Ts WarnerMedia closing late on Friday, creating new media and entertainment giant Warner Bros. Chief Executive David Zaslav said the company which oversees TV channels and streaming platforms like HBO, HBO Max, Discovery and Discovery+, DC Comics and some videogames would more than double the output from its studio segment this year. At the end of 2021, the pro forma debt for WBD was over $56 billion. Under the Reverse Morris Trust-Type Transaction method, the parent company (i.e. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services. Upon completion of the transaction, AT&T shareholders will, together, own 71% equity interest in WBD, with Discovery shareholders owning the remainder 29%. All articles are my personal perspective on a given prospective investment and should not be considered as investment advice. Youre reading a free article with opinions that may differ from The Motley Fools Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Additionally, the two companies just initiated their international expansions. Trading AT&T and Discovery After $43 Billion Media Merger AT&T and Discovery have come to terms on a $43 billion media deal. This increased its subscriber numbers to 76.8 million. That sale is being blamed for the slow pace of renewals for some of The CW's shows, including the Warner Bros.-ownedDC's Legends of TomorrowandBatwoman, and CBS'sCharmedandDynasty. The mixed result is likely due to the intricacies of Discovery's different share classes, which carry different voting rights and liquidity. Discovery (NASDAQ:WBD) has slipped over 20%, Comcast (CMCSA) is down about 18%, shares of Disney (DIS) and Amazon (AMZN) have both fallen around 25%, and Netflix (NFLX) takes the proverbial cake, with a stock price that plummeted over 65%. All Rights Reserved. Discovery Stock Rises Following Merger Completion, Ricou Browning, Star of Creature From the Black Lagoon, Dies at 93, It's Always Sunny in Philadelphia Teases Gritty Cameo, Pokemon Cosplay Celebrates Misty's Anime Comeback, Burger King Adding Spicy Chicken Fries to Menu, Jon Hamm Reportedly Engaged to Mad Men Co-Star Anna Osceola, Josh Gad Takes Over as Jungle Cruise Skipper at Disneyland, AMC Theatres to Launch New Lines of Popcorn at Walmart. The companies are also forecasting annual cost synergies of $3 billion. See which stock you should consider. Discovery, will start When you buy stock, you're essentially buying a tiny piece of the company it represents. Discovery has faced more cautious advertisers, ongoing cord-cutting, competition within streaming and upheaval created from the merger deal itself. The final green light for the megadeal came at a special shareholder meeting held online; shareholders of AT&T, led by CEO John Stankey, do not need to vote on the combination. 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