Disney vs. Warner Bros. Discovery: A Tale of 2 Earnings | Analysis

Wednesday’s earnings calls told a tale of two enormous entertainment companies going in starkly different directions.

Warner Bros. Discovery shocked Hollywood with a $10 billion quarterly net loss that included a $9.1 billion write-down on the value of the company’s struggling linear TV assets.

That came in stark contrast to Disney, which just hours earlier touted its latest milestone – a quarterly profit of $47 million for its combined direct-to-consumer business. And its studio segment was saved from potential disaster by the blowout success of Pixar’s “Inside Out 2.”

While Disney seemingly turned a corner in its race to catch streaming leader Netflix, WBD and its beleaguered CEO David Zaslav are staring down the barrel of a much-needed strategic reset — one that could involve selling the company or separating assets into different entities.

“Last summer ‘Barbie’ brought back pink but now Warner is seeing nothing but red,” said analyst Jamie Lumley at Third Bridge. “A massive write-down and declining revenues across all major segments have alarm bells ringing at the beleaguered media giant as Warner Bros Discovery struggles to find a good path forward.”

A “triggering event” and a ticking clock

Zaslav is running out of time to make two-year-old WBD work. The company’s latest misstep – the failure to secure one of the packages for the NBA’s $76 billion in media rights — was a “triggering event” for the company to take a one-time impairment charge that severely lowered the value of the TV assets on its books, WBD CFO Gunnar Wiedenfels told analysts on Wednesday.

But losing the NBA wasn’t the only factor. Softness in linear advertising and the gap between WBD’s book value and market capitalization — caused by the company’s depressed stock price, which is trading below $8 — also forced WBD’s hand, the company said.

Shares of WBD, which are down 47% in the past year, fell 10% in after-hours trading. The $10 billion net loss was a nearly eight-fold plummet from last year. WBD also reported its revenues fell 6% to $9.7 billion. Unsurprisingly, Wall Street didn’t see the write-down coming: Wednesday’s results fell well short of analysts’ expectations.

Achieving streaming profitability has been a chief focus of all the traditional Hollywood studios. Disney and WBD (which built Max out of HBO) have put themselves in the best position to deliver direct-to-consumer returns to Wall Street. But WBD’s exposure to struggling cable TV markets is much higher than Disney’s — 13% versus 51% in 2023 — and those assets have become a toxic anchor dragging down Zaslav’s ambitions.

“It’s fair to say that even two years ago, market valuations and prevailing conditions for legacy media companies were quite different than they are today, and this impairment acknowledges this and better aligns our carrying values with our future outlook,” Zaslav said.

Zaslav’s NBA misadventure has further battered the stock price. And he has doubled down by deciding to sue the basketball league for breach of contract, which is likely to hurt the company’s future sports relationships, TheWrap reported on Tuesday.

On Wednesday, Zaslav said he would stay the course. WBD executives touted their efforts to spread Max to more international markets – it is now in 65 — and forecast DTC profitability for the full year. “We are only just beginning to unlock the global value opportunity that exists,” Zaslav said.

But potential strategy options are not off the table, either. “We are very clearly focused on evaluating everything, beyond just running the operational business,” Wiedenfels said.

Zaslav touted HBO’s upcoming slate of high-profile shows, which will feed into Max, including “The Batman” spin-off series “The Penguin,” “Dune” spin-off series “Dune: Prophecy” for later this year, and new seasons of “The White Lotus,” “The Last of Us” and the new “Game of Thrones” spin-off, “A Knight of the Seven Kingdoms.”

While largely absent in the summer, Warner Bros. is banking on having two of the largest films in the fall. In September, the studio will release Tim Burton’s “Beetlejuice Beetlejuice,” which is currently projected for a $75 million-plus opening over Labor Day weekend. That will be followed in October by “Joker: Folie a Deux,” the sequel to the first R-rated film to gross $1 billion at the global box office, with Lady Gaga joining Oscar-winning lead Joaquin Phoenix.

In 2025, a mix of auteurs and IP will lead off Warner’s slate, with Bong Joon-ho’s “Mickey 17” coming out on Lunar New Year weekend followed by a secret project from “Creed” and “Black Panther” duo Ryan Coogler and Michael B. Jordan in early March. Warner will then try to capitalize on the rising interest in video game movies with “Minecraft.”

The biggest stakes are on “Superman,” the film intended to relaunch the DC Cinematic Universe and could, if successful, bring billions to Warner Bros. in theatrical, streaming and ancillary revenue.

Disney prepares for tougher economic conditions

Disney’s streaming milestone came not from its entertainment platforms Disney+ and Hulu, but from profitability in ESPN+. But the combined DTC profitability was one quarter ahead of the forecast executives have laid out for Wall Street.

“Obviously, we have made a ton of progress,” Disney CFO Hugh Johnston told analysts. “We were losing a billion dollars a quarter not all that long ago and now we are making money.”

Not all the news was good for Disney, however. Its Experiences division, which typically makes up more than a third of the company’s overall revenues, suffered a 3% operating loss, and executives warned of more summer softness for its parks business, driven by lower demand in China and less consumers traveling in Europe because of the Paris Olympics. That spooked some Wall Street analysts.

David Joyce, an analyst at Seaport Research Partners, downgraded Disney to neutral after Wednesday’s earnings, blaming slowing parks growth and DTC profitability that would likely not generate “as much as hoped” in fiscal 2025.

Thomas Monteiro, a senior analyst at Investing.com , said the earnings report “clearly shows that Disney has been preparing for an economic downturn by taking all the necessary steps toward a more resilient, less consumer-demand-centric revenue matrix. Disney continues to be under appreciated by a market that expects a much faster and more innovative pace amid the AI frenzy.”

Still, next quarter’s results are likely to be frothier, with more box office receipts from “Inside Out 2” and the multiple records-breaking success of “Deadpool & Wolverine,” flowing a few billion dollars onto the balance sheet.

Additional reporting by Jeremy Fuster.

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