The newly created streaming giant Warner Bros. Discovery (WBD) officially began trading on the Nasdaq (^ IXIC) on Monday, opening at $ 24.08 per share. share on its first day as a listed entity.
Prior to the company’s Wall Street debut, Evercore ISI Group upgraded the stock from In-line to Outperform and announced a price target of $ 40.
The $ 43 billion merger, which ended Friday, strengthens Discovery CEO David Zaslav’s position as the company’s new chief executive. WarnerMedia’s CEO Jason Kilar left at the close of the deal.
“I am convinced that our collective energy and true love for these companies and brands will build the world’s most dynamic media and entertainment business,” Zaslav wrote in an employee memo, quoted by CNN.
Zaslav went on to say that Warner Bros. Discovery is “well positioned to become a top-tier streaming competitor” as the company looks set to compete with established players in the field from Netflix (NFLX) and Disney + (DIS) to Apple TV + (AAPL) and Amazon Prime Video ( AMZN).
AT&T (T) shares began Monday’s session in the green (up about 4%). Shareholders in AT&T own 71% of the new company. Discovery shareholders own the remaining 29 percent.
“This is going to be the most exciting story in the sector in the next few years,” Jessica Reif, an analyst at Bank of America, told Yahoo Finance earlier.
“If you step down, this will probably be the widest offering the market has not yet seen,” Reif said, emphasizing the huge advertising potential that could result, in addition to the company’s ability to optimize content spending, increase marketing effectiveness and reduce churn.
The analyst referred to the elevated scripted content of WarnerMedia’s HBO – from the cultural hit “Game of Thrones” to the recent phenomenon “Mare of Easttown” – along with Discovery’s quirky cult favorite shows, such as “Dr. Pimple Popper” and “90 Days Fiancé.”
WarnerMedia also has lucrative development deals with high-profile creatives, including “The Batman” director Matt Reeves, “The Sex Lives of College Girls” creator Mindy Kaling, “Insecures” Issa Rae and many more.
“[HBO Max] is at the very beginning of its growth curve, “Reif continued, noting that the streaming service has been” on fire “, despite increased competition in space.
By the end of 2021, HBO and HBO Max have a total number of subscribers of 73.8 million. By comparison, Discovery last reported 22 million subscribers.
“Is this a business?”
As investors begin to shift focus away from subscriber growth, Reif predicted that business operations and profitability will be key variables for shareholders going forward.
“‘Is this a real business?’ “Can you make money?” Can you offset the decline in the old business? ‘”Said the analyst, reiterating his belief that Warner Bros. Discovery has “the best set of assets” to not only help offset declines in the secular business, but also expand “into the next growth curves for streaming.”
Still, execution remains a major challenge amid new management and restructuring issues. In addition to Kilar, the company fired other key executives, including Warner Bros. chief Ann Sarnoff and HBO Max chief Andy Forssell.
Profitability will also be in focus when investors zoom in on the earning potential and business impact on EBITDA and free cash flow.
Geetha Ranganathan, senior media analyst at Bloomberg Intelligence, told Yahoo Finance that “Investors are still concerned about how profit margins will shake and whether [Warner Bros. Discovery] will be able to deliver on their free cash flow target, “which is about $ 8 billion by 2023.
HBO Max alone is likely to generate about $ 1.5 billion in EBITA losses, the analyst said.
“At the end of the day, the HBO Max / Discovery product will be in the top four streamers along with Disney, Netflix and Amazon Prime,” Ranganathan predicted, though she quoted “some short-lived pain” when it comes. to the profitability of free cash flow.
Alexandra is a senior entertainment and food reporter at Yahoo Finance. Follow her on Twitter @ alliecanal8193
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