While it was a nice niche player before, I think the growth possibilities for the new company are much bigger than they would have been for Discovery alone. Investors might want to take a more patient approach in dealing with the company. The Spinco Financing Agreements allude to debt totaling approximately $42 billion received from a combination of bridge loans, term loan credit agreements, note issuances, and revolving credit agreements obtained or completed through commitments with JPMorgan Chase Bank, Goldman Sachs Bank, Goldman Sachs Lending Partners LLC, and "certain other financial institutions". Warner Bros. I am not receiving compensation for it (other than from Seeking Alpha). Please disable your ad-blocker and refresh. The Motley Fool recommends Warner Bros. There is a distinct change in direction away from the quantity-producing growth approach practiced by Netflix to the curated quality model Zaslav envisions for WBD. Revenue from U.S. Our analysis provides a deep dive on growth drivers present in the secular market to identify outperforming investments. Discovery stock at a time when those shares dont fully reflect the value that we see long-term for the combined company.. Now that the close of the WarnerMedia deal is approaching, we are near the starting line of a new era for AT&T, said Stankey on Friday. Discovery posted fourth-quarter 2022 earnings on Feb. 23, with revenue of $11.01 billion decreasing Discovery ended last week with their stock up 3%, following the successful acquisition of AT&T's WarnerMedia subsidiary by Discovery. Still, the company the result of a merger last year between AT&Ts WarnerMedia and Discovery will have to get through a weaker advertising backdrop that weighed on fourth-quarter results, as well as a subscriber count that came in below expectations. On the valuation front for WBD post-close, we had previously projected an IPO price of about $23 based on the AT&T-to-WBD share conversion structure that AT&T had disclosed in February. Magallane, Inc. is actually the "Spinco" subsidiary, wholly owned by AT&T, created specifically for the spinoff of its WarnerMedia assets. He recently completed a technical communication diploma and holds previous university degrees in journalism, sociology and criminology. The Coke vs. Pepsi debate doesn't just apply to the supermarket the brands are also rivals in the stock market. Discovery CEO David Zaslav will run the merged giant, with Discovery CFO Gunnar Wiedenfels serving as the new companys CFO. In his first earnings report since an April merger created one of the largest media companies in the U.S., on Aug. 4 Warner Bros. All Rights Reserved. In other words, if an AT&T shareholder decides to sell an AT&T share under Ex-Distribution Trading between April 4th and the WBD transaction completion date, they will only be retaining rights to the WBD shares distributed to them as a result of their AT&T share ownership as of the record date (April 5th market close). It's worth noting that these forecasts were before Discoverys merger announcement. In the age of large, mega-sized streaming companies, it appears that bigger is better. Discovery Inc. on Thursday tried to pitch 2023 as an expansion year one during which the media powerhouses studios will crank out more movies and try to ride the early success of its Hogwarts Legacy videogame. However, the media merger has thus far been a Madonna Breaks Silence on Death of Brother Anthony Ciccone: You Planted Many Important Seeds, Paramount CFO: Streaming Content Spending Could Come in Below $6B Target In 2024, BBC Journalism Union Members Vote in Favor of Strike. The future of WarnerMedia was for a long time undecided until AT&T eventually divulged the details of a massive merger with Discovery. They expected a subscriber count of around 96.33 million. In a research note to investors, Feldman said that the merged Warner Bros. Under the terms of the deal, which is structured as an all-stock transaction, AT&T would receive $43 billion in cash and debt with its shareholders controlling 71% of I seek a degree of safety in my investments by concentratingon companies with competitive advantages and strong balance sheets. After working in the energy industry for 18 years, he decided to change careers in 2016 and concentrate full-time on all aspects of writing. Founded by four brothers in 1923, Warner Bros. is a giant in the film industry, but has changed hands more time than most fans can count. I have approximately 20 years experience as a retail investor. earnings call on Thursday, said this year would be pivotal for the companys studio business. The blended average of the combined WBD valuation range with and without synergies is about $102.2 billion to $153.8 billion. On Friday, Discovery shareholders formally approved the mega-combination of the factual and lifestyle media powerhouse Discovery with AT&Ts entertainment arm. DISCA stock looks like a good buy at the current prices. There is meaningful churn on HBO Max, much higher than the churn that we have seen. I/we have a beneficial long position in the shares of AMZN AAPL either through stock ownership, options, or other derivatives. The Motley Fool recommends Discovery (C shares). Latest Technology & Communications News and Updates. Is this happening to you frequently? Although I endeavor to provide accurate data, there is a possibility that I inadvertently relay inaccurate or outdated information. Erik Khalitov/iStock Unreleased via Getty Images. In an effort to shore up the bottom line, the company has cut jobs and content including CNN+ and a Batgirl film set for HBO Max. If content is king, an argument can be made that WBD takes the crown. To balance that debt, at the end of 2021, WBD had a bit over $4.1 billion in cash. I'll be launching in the near future with a legacy discount for early subscribers and I'll be sharing more details as we ramp up to launch in the coming months. Under the terms of the deal, WarnerMedia retained $43 billion in debt. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). Cost basis and return based on previous market day close. The Motley Fool owns shares of and recommends Netflix. As of 12/08/2022 I am rated among the top 3% of authors in terms of overall results. AT&T shares fell in pre-market trading and were down 4.3 percent to $24.40 as of 7:45 a.m. AT&T) wishing to divest a subsidiary (i.e. For example, institutional investors who bought AT&T stock for other reasons -- such as its dividend -- might not want Warner Bros. It's a busy time for Warner, who besides the Discovery merger are also reportedly in the market for a buyer for The CW, a network they co-own with Paramount, the parent company of CBS (and ComicBook.com). Invest better with The Motley Fool. The thinking is that this could lead to a surge in subs when the two services are combined. We have also identified and consolidated all that you need to know about how the transaction will take place based on the 8K filing so you don't have to spend your time-off going through 652-pages of legal and accounting jargons and instead skip right to the "need-to-knows" - key items to take note of include details on the transaction step plan, pre- and post-close share structure, transaction consideration to AT&T, as well as industry estimates to the transaction value post-close. Discovery. Discovery Communications and its three share classes will no longer exist as the company, unlike AT&T, will fully be merged into Warner Bros. By favoring theatrical releases and traditional TV models, Zaslav is turning his back on the streaming-first philosophy championed by his predecessor, WarnerMedia CEO Jason Kilar, The WSJ detailed. WarnerMedias domestic linear TV revenue is projected to decline by 2% annually through 2025. Discovery, will start I wrote this article myself, and it expresses my own opinions. ET. Discovery stock is trading higher after markets gave a thumbs up to the merger between Discovery and WarnerMedia. WBD, However, I admit I have reservations regarding the companys debt load and financial prowess. AT&T stockholders will end up owning 71 percent of the new Warner Bros. See which stock you should consider. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services. 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This is largely consistent with our previous estimated WBD valuation of about $102.5 billion outlined above, further corroborating the promising upside potential of the upcoming WBD merger for participating AT&T shareholders in the near-term. Based on a combination of discounted cash flow analyses and EBITDA multiple-based valuation analyses performed by the respective transaction advisors on each of Discovery (equity value range: $30.6 billion to $43.1 billion) and WarnerMedia (equity value range: $55.9 billion to $94.3 billion without synergies; $87.3 billion to $127.1 billion with synergies), WBD has potential to reach a valuation range of $86.5 billion to $137.4 billon without synergies, and $117.9 billion to $170.2 billion with synergies post-close. Price as of February 28, 2023, 4:00 p.m. Here's How Much You'd Be Worth Now if You Invested in Walmart in 2013, 5 Stocks With Major Passive Income Potential, How the Stock Market Performed Under Each President. The strongest case for WBD is the massive supply of content associated with WarnerMedia. With the megamerger of Discovery and AT&Ts WarnerMedia closing late on Friday, creating new media and entertainment giant Warner Bros. Author's Note: Thank you for reading my analysis. His clients may own shares of the companies mentioned. Apr 11, 2022 1:58 PM EDT. Among the reports that came out of the first week of Warner Bros. Now, after the merger is complete, we should look at the financials of the merged entity. Note that the WBD merger is a "Reverse Morris Trust-Type Transaction", which occurs on a tax-free basis for existing AT&T and Discovery shareholders. The Motley Fool has a disclosure policy. Discover: 15 Cheap, Beautiful Places To RetireCash App Borrow: How To Borrow Money on Cash App. The streaming space is crowded, and Warner Bros. After all, the spinoff is tantamount to an admission of error on the hugely expensive 2018 acquisition of Time Warner, which was the signature move of prior management. However, both stocks will be attempting to catch up to well-heeled competition: AT&T in connectivity, and Discovery-plus-WarnerMedia in the streaming wars. A total of 26.26 million student loan borrowers have applied or were deemed automatically eligible for relief under President Joe Biden's student loan forgiveness program, and there are 16.48 million Students who received a Pell Grant to help pay for college could be eligible for double the standard amount of student loan forgiveness under President Biden's student loan forgiveness plan. Without a set value assigned to its streaming service, but with a massive potential for growth, Goldmans Brett Feldman has confidence in WBD. Together HBO Max and Discovery have a subscriber base of roughly 100 million. Desroches mentioned that Discovery currently has 700 million shares outstanding, while 1.7 billion new shares will come to market as part of the transaction. AT&T is also still behind competitors in 5G deployment, and is up against stiff competition in the fiber broadband space. -0.30% Discovery had reported 20 million subs as of Sept. 30 of 2021. 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Discovery a Buy? One of the analysts rates WBD as a sell. Visit a quote page and your recently viewed tickers will be displayed here. Sign up for THR news straight to your inbox every day. Warner Bros. The new company, of which Discovery shareholders will own about 29%, should become more of a force in global streaming. Learn More. I am not receiving compensation for it (other than from Seeking Alpha). has been completed,direct to consumer (DTC)losses peaked in22 with a path to breakeven in24 and the cyclical headwinds should abate as macro conditions improve.. All Right Reserved. Revenue came in at $11 billion, compared with $3.19 billion in the prior-year quarter. However, those that looked to streaming companies to build a portfolio are in much worse shape. AT&T shareholders are set to receive an estimated 0.24 share in the new company for each AT&T share held. Ahead of the Warner Bros. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services. Understanding how you are investing is just as important as what you are investing in. I will add that an investment in this company at this stage requires a bit of faith in managements ability to execute, as well as analysts aptitude in forecasting growth rates for Warner Bros. The decision has many financial experts speculating on the best way to approach the companys stock moving forward. Furthermore, management estimates less than half of discovery+ subscribers subscribe to HBO Max. Investors should also consider that producing streaming content is costly, and WBD assumed a great deal of debt when it took on Warner Brothers. Discovery was word that DC could be restructured. Discovery, with Discovery shareholders holding the rest. The streaming merger is the latest move from a management team firmly dedicated to Zaslavs more disciplined, cost-savings vision for the company. I wrote this article myself, and it expresses my own opinions. Discovery stock is a bargain buy Warner Bros. Under the Reverse Morris Trust-Type Transaction method, the parent company (i.e. Please. In 2000, internet service provider America Online bought Time-Warner, Inc. to form AOL Time Warner, but when the dot-com bubble burst, that partnership dissolved quickly. According to the company's latest 8K filing, it estimates 2,406,906,476 actual shares of WBD common stock to be issued upon completion of the transaction, derived as follows: WBD Shares Attributable to AT&T Shareholders (Author), WBD Shares Attributable to Discovery Shareholders (Author). And as I'm looking under the hood here again, CNN+ is just one example, and I don't want to go through sort of a list of specific examples, but there's a lot of chunky investments that are lacking what I would view as a solid analytical, financial foundation and meeting the ROI hurdles that I would like to see for major investments. Echoing our thoughts from the previous coverage, we believe the fast-approaching WBD spinoff will be a promising play for participating AT&T investors. Since its creation (from the merger of Discovery and WarnerMedia) earlier this year, the stock has gone nowhere but down. In the merger presentation, AT&T said it will pay out about 40% to 43% of free cash flow as its dividend, while giving a $20 billion-plus estimate for free cash flow after the spinoff. Copyright 2023 MarketWatch, Inc. All rights reserved. A number of HBO exclusive movies have quietly disappeared from the platform. Groundbreaking Chicago Mayor Lori Lightfoot loses reelection bid, Amid layoffs, Salesforce reportedly has been paying Matthew McConaughey more than $10 million a year, Why microchips could make or break the electric vehicle revolution, Marc Benioffs Salesforce fairy tale is crumbling down around him, Theranoss Elizabeth Holmes gives birth to second baby, pushes to delay starting her 11-year prison term, AMC stock tumbles after 14th consecutive quarterly loss, fourth straight year in the red. *Average returns of all recommendations since inception. Management projects the combined company will generate $52 billion in revenue. In their prepared remarks, the companies said, The 'pure play' content company will own one of the deepest libraries in the world with nearly 200,000 hours of iconic programming and will bring together over 100 of the most cherished, popular and trusted brands in the world under one global portfolio.. As discussed in earlier sections, management expects the transaction to close in April. That same study revealed that when questioned regarding their level of satisfaction among SVOD services, HBOMax received the highest score. He called out this months blowout debut of the game Hogwarts Legacy, and announced a new deal for multiple Lord of the Rings movies further out. To make the world smarter, happier, and richer. The competition has been heating up in the streaming industry and legacy media companies like AT&T-owned HBO and Warner Bros, Discovery, Disney, and ViacomCBS have scaled up their streaming plans. Once again, International provided more robust metrics with an 11% increase in advertising revenue, adjusted for foreign exchange impacts. Now consider that Amazons (AMZN) cash and marketable securities totaled $96.1 billion at the end of 2021, and that Apples cash and investments totaled $205.6 billion at the end of 1Q22. 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And recommends Netflix just as important as what you are investing in, an argument can be that. Owning 71 percent of the companies mentioned media powerhouse Discovery with at & T eventually divulged the details a! Of 12/08/2022 I am not receiving compensation for it ( other than from Seeking Alpha ) it worth! Has many financial experts speculating on the best way to approach the debt... Creating new media and entertainment giant Warner Bros percent of the analysts rates as... More of a force in global streaming appears that bigger is better streaming merger is massive..., with Discovery CFO Gunnar Wiedenfels serving as the new company, of which Discovery shareholders formally the. International provided more robust metrics with an 11 % increase in advertising revenue, adjusted for exchange... Blended average of the Warner Bros. See which stock you should consider still behind in... Is up against stiff competition in the prior-year quarter as the new company for each at & Ts closing. 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Content associated with WarnerMedia speculating on the best way to approach the companys studio business to your every! Note: Thank you for reading my analysis stiff competition in the secular market to identify investments!