Warner Bros. Discovery stock rises and then dives into Nasdaq debut – Deadline

UPDATED with closing price: Warner Bros. Discovery shares had a volatile debut rising early in the session, heading lower and ending the session higher as financial analysts dissected the newly merged unit after trading closed on Friday. Reports out today – and more will follow – range from a thumbs up about WBD’s streaming, content and planned cost savings, to caution regarding its debt and its large portfolio of linear cable networks.

The stock opened at $ 24.08 and rose to $ 26.26, falling, spending a few hours in the red, but ending the session higher at $ 24.78.

The broader market had also declined, and it is possible that fusion mechanics could weigh on WBD shares in the short term. More specifically, the deal had AT&T to distribute shares in the new WBD to AT&T shareholders, many of whom were expected to turn around and sell them. This is because AT&T holders, who ended up with 71% of the WBD shares, like the telecommunications company for their dividends, and WBD does not pay one.

About 45% of AT&T shares are owned by retail investors (or individuals versus institutions). This is high compared to around 20% for US equities overall. And most of the institutional ownership is primarily from income funds, which were also attracted by AT & T’s high dividends. That likely means “meaningful offering pressure” on the shares after the merger, Evercore ISI analyst Vijay Jayant said, as “the lack of a dividend at WBD could result in a significant backflow of shares from existing AT&T shareholders.” But only temporarily. In the long run, Jayant is quite optimistic about the creation of “the second largest media company after Disney”, citing 2021 revenue of $ 46B, a content budget of over $ 20B annually that supports a library of over 200,000 hours of programming, and the assets to successfully compete in the global DTC business.

He hailed the combination of HBO Max and discovery + as a single service as extremely synergistic, “where HBO Max brought the expensive, flashy originals needed to acquire customers, and Discovery +’s unscripted content provides the vast library of content that is necessary to retain these customers. ” And he sees increased scale in older TVs that increase revenue and profits there. He rated the WBD stock “outperform” with a price target of $ 40.

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CreditSuisse’s Doug Mitchelson presented both a ‘WBD Day 1 Bull Case’ and a ‘Bear Case’ that landed in the bull camp given, he said, WBD’s’ global content, strong scale position in library, brands, franchises, the size of studios and content costs, global distribution and reach and overall resources. ” He noted management’s experience with mergers (Discovery under David Zaslav bought Scripps Networks in 2018 and did a good job of putting the two together) and its healthy free cash flow. His stock rating is ‘outperform’ and target price is $ 52.

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He suggests a win-win situation. “We see 3 potential long-term results: (1) streaming success; (2) streaming failed, and mgmt returns to high-margin wholesaler (licensor); or (3) M&A (the one who buys / merges with WBD immediately becomes the global content / streaming manager). ” Wall Streeters have suggested that Comcast in particular could / should wait a year or two and then buy WBD.

Mitchelson’s bear case involves significant execution challenges in a large, complex organization; the need to reduce HBO Max output; concern over streaming costs; and tremors of ongoing subscriber and viewer fall in linear television.

Then there is always the chance of macro-disruptions (inflation, geopolitical risk) that can squeeze the advertising revenue, which in turn will make it harder for the merged company to pay down the debt. The mood at the WBD depends in part on how quickly Wall Streeters think it can reduce its debt burden by about $ 55 billion.

Zaslav said he intends to cut at least $ 3 billion in costs. A handful of top executives are out from last week. The cuts are likely to continue and may be deep.

“We remain concerned that the primary need to reduce leverage puts WBD at a relative disadvantage for larger entities that have greater financial flexibility to invest in streaming,” wrote Michael Nathanson of MoffettNathanson.

“Even if the company does not plan to win the expense war and will redistribute some of their total $ 20+ billion in content expenses to HBO Max, we question whether the other constraints and pressures in the industry will be enough to hit WBD’s $ 14 billion 2023 EBITDA guidance. ” (EBTIDA, a key figure, is earnings before interest, tax, depreciation and amortization).

Nathanson reiterated what has recently been a focal point of Wall Street, from total adoration of all things streaming to wondering if it’s a good deal – the general feeling is that the jury is still out. He has a “neutral” rating on the stock and a target of $ 27.

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There is enthusiasm about having another really big player in the pure-play media and entertainment field. An analyst from Zaslav said: “I’m sure he will do a better job than the telephone people did.”

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