Barbie Woes Loom As Shares Tank

Barbie Boosts Profits, but Strikes and Ad Market Woes Loom

Warner Bros Discovery (WBD) has exceeded core quarterly profit estimates due to the blockbuster success of “Barbie” at the box office. However, ongoing Hollywood strikes and a sluggish advertising market could impact earnings into the next year. To delve into this further, let’s explore the implications of these challenges.

Hollywood Strikes and Their Implications

Despite the recent agreement between Hollywood’s film and television writers, the SAG-AFTRA actors union strike since July continues to disrupt the industry’s 2024 film slate. This ongoing strike is causing challenges for media companies as they face a shortage of new content to sell. Nonetheless, the situation remains uncertain.

Financial Outlook and Risks

Chief Financial Officer Gunnar Wiedenfels highlighted the risk of the strike’s financial impact lingering into 2024. The company also faces challenges associated with the potential continuation of sluggish advertising trends, making the financial outlook uncertain.

Impact on Original Content

Chief Executive David Zaslav noted that the company experienced its lightest original content slate in years and had to postpone some releases. This, in turn, led to a decline in third-quarter streaming subscriber numbers.

Financial Implications

For the full year 2023, it is expected that the strike will have a negative impact on EBITDA in the range of “a few hundred million dollars.” On a positive note, the company will experience “several hundred million dollars” of positive cash flow due to reduced production expenses.

Expert Opinion

Notwithstanding the extraordinary success of the “Barbie” movie, some experts like Michael Schulman, Chief Investment Officer at Running Point Capital, believe it may be a one-off occurrence that won’t be replicated for a few years.

Financial Performance

Warner Bros Discovery reported third-quarter adjusted core earnings of $2.97 billion, surpassing estimates of $2.92 billion. The overall revenue of $9.98 billion met expectations. The company posted free cash flow of $2.06 billion, exceeding predictions.

Reduced Losses

While the company reported a net loss of $417 million, it was significantly narrower compared to the $2.3 billion net loss in the same period the previous year.

Advertising Revenue Challenges

Advertising revenue at its networks segment declined by 12% to $1.71 billion due to global conflicts and inflation, creating an uncertain climate for marketers.

Streaming Unit Profitability

The company’s streaming unit achieved an adjusted core profit of $111 million, marking a substantial improvement compared to a $634 million loss a year ago. Global average revenue per user in this segment increased by 6%.

Customer Base and Streaming Service

Warner Bros Discovery reported having 95.1 million global direct-to-consumer customers by the end of the quarter, slightly down from 95.8 million in the previous quarter. In May, the company launched its Max streaming service, combining HBO Max’s scripted entertainment with Discovery’s reality shows.

Earnings Per Share (EPS)

The company recorded a loss of 17 cents per share, which was larger than the estimated loss of 6 cents.

Lastly, Warner Bros Discovery’s latest earnings report showcases a mix of successes and challenges. “Barbie” drove profits, but Hollywood strikes and the advertising market remain sources of concern. The financial outlook remains uncertain, and the company continues to adapt to changing industry dynamics.

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Disclaimer: This content is for informational purposes only. Always conduct your own research and analysis before making investments. Past performance is not indicative of future results.

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