WBD
WBD is a media entertainment giant that has had a rough last few years, but since the time I last posted the stock has reached a bottom and has started to climb up again, there are several reasons for this which I will explain on this post.
1- Warner success in 2022
As said earlier this has been a rough year for the stock price, the company has a severe debt problem which some believe they are not going to pull through, this has led Zaslav to cut back on projects that did not have great outlook and focus on the diamonds of this company (Wizarding world, Game of Thrones, DC : Joker(2019), Batman(2022)).
This has brought great success in the form of House of Dragon, Hogwarts Legacy, The DC movies and the experiment, The Last of Us which is the latest series that is raging everywhere. In terms of numbers most of this projects broke records, House of dragon premiere broke HBO´s viewership raking up 10 million viewers, Hogwarts legacy is currently the best selling game on the major videogame selling platforms (Steam, Epic games) and The last of us has had the largest surge of viewers of any series from one week to another (22%) from 4.7 million viewers to 5.7 million.
This shows how Warner Brothers is still king of entertainment having the best quality, and it will only get better, since Zaslav has already said he would much rather have a bunch of high quality shows and franchises than to follow Disney, Netflix style of having a shit ton of shows that no one watches or are deemed lower quality. Furthermore, the success of Hogwarts legacy shows how fast wbd gaming is expanding into the broader gaming market to make place for future dlc and expansions, even thought its worth mentioning that Multiversus, a free multiplayer fighting game they released a few months back is basically dead in the water although having posted decent numbers on its release. This is also accompanied by their high revenue numbers on their cable business, the revenue will continue decreasing over the years but it is what Zaslav is using to pivot the company into new and classic ways in which warner studios and discovery can make money, be this the streaming services or the cinema releases.
In short, WBD´s sucess in 2022 in terms of their Entertainment Business, shows how they are picking up pace, and with the incoming revenue from HBO MAX, their cable business and WBD gaming accompanied by the tax write offs on poor outlook projects and layoffs they should be able to get enough revenue to pay their debt
2- HBO MAX, Discovery+
As said earlier WBD is boasting great legacy content which keeps bringing people into their streaming services, The Wizarding world, Game of thrones, Adult Swim and all of the Discovery content keeps bringing people into the platform which are expected to grow as these new projects like The last of us get a fanbase.
The Elephant in the room in regards to HBO MAX and Discovery is how will they manage to merge into the new streaming service, this is currently unknown, but the name of the combined service is rumored to be Beam. In regards to Discovery+ , they are still unavailable in a number of regions which represents unexploited markets that sooner or later will be expanded to, this means more revenue towards subscriptions and larger audiences as a whole. The latest numbers concerning to subscribers in the platforms give 92.1 million in combination of both streaming services, they are projected to grow into the 150 million at some point in 2025.
3- Comparison with competitors
In terms of valuation analysis via ratios and sales comparison with the competition WBD is showing some great numbers, excluding their P/E ratio.
WBD
P/B : 0.71
P/S : 1.34
P/FCF : 21.55
Sales Q/Q : +211.8%
DIS
P/B : 2.05
P/S : 2.39
P/FCF : 2144.73
Sales Q/Q: +7.8%
NFLX
P/B : 7.44
P/S : 5.11
P/FCF : 99.74
Sales Q/Q: +1.90%
The only company that comes close to WBD in this comparison is PARA, which even though it looks undervalued via ratios, it does not come close in regards of the growth and production of content that WBD can achieve. It has to be said that if you don´t like WBD for anything in particular, the undervalued stock you should see in this sector is PARA
Debt
This is the main issue why WBD is so undervalued in terms of their share price, their current debt levels are sky high in a macro-economic environment that does not allow for an option to refinance into a lower interest rate payment. With a debt to equity ratio of 1.03 this means that WBD has more than 30 billion dollars in debt, it has to be said than more than in average the coupons they pay for the debt are of 4% annually and the principals are of a very long maturity, more than a decade or two in some cases, this gives a lot of time for Zaslav to develop his plan of restructuring the company into a massive growth cash cow. If the rates where higher and maturity shorter this would mean a really serious issue for the company, but there is plenty of time until the main component of the debt expires to solve this issue, and Zaslav has given it a high priority and is being reduced at a fast pace.
Conclusion
Since the last time I posted the stock has been on a ride, surfing a harsh macroeconomic environment, getting in lows as below 9$ a share up to the point that all of its successes of the year, its growth outlook and its debt reduction have gotten it up 14.22$ a share, the current rally has helped, but this stock remains severely undervalued with price targets in the 20`s range.
The next earnings release for WBD is coming in a week or two, I expect it to be a beat which would send the stock into a deeper rally and some nice gains in the way, on the other hand if the stock dumps on earnings I will probably continue buying more if it gets down to the 10$ dollar range in which it sat a few months ago, considering i DCA´d from my first position at 14.37 deep into an average cost of 10.47 I have to admit I have a safe margin until the stock price starts hurting.
This is all I have to say about this Sleeping giant of a company, have a great weekend and good luck.
Sources:
Finviz:
https://finviz.com/quote.ashx?t=WBD&p=d
https://finviz.com/quote.ashx?t=DIS&p=d
https://finviz.com/quote.ashx?t=NFLX&p=d
Q3 ER: https://wbd.com/wp-content/themes/warner-bros-discovery-corporate/pdf/WBD-3Q22-Earnings-Release.pdf
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