Warner Bros. Discovery (WBD) reported first quarter earnings before the bell on Thursday that missed expectations on both the top and bottom lines. Free cash flow jumped amid aggressive cost cutting, while the company's linear TV business continued to decline.
Revenue came in at $9.96 billion, missing Bloomberg consensus expectations of $10.27 billion — a 7% drop compared to the $10.70 billion seen in Q1 2023. The company reported an adjusted loss per share of $0.40 versus a loss $0.44 in the year-earlier period.
The stock fell about 3% in premarket trading as investors digested the results.
WBD, like other legacy media companies, has grappled with an unfavorable ad environment. Network advertising revenue tumbled by 11% in Q1 from the year-earlier period. The company reported network ad revenue of $1.99 billion, missing Bloomberg expectations of $2.01 billion.
The studios business also struggled, despite high-profile movies like "Dune 2." The segment was dragged down by games with "Suicide Squad: Kill the Justice League" underperforming, especially compared to last year's "Hogwarts Legacy" release.
Revenue for the segment came in at $2.82 billion, a 13% year-over-year decline excluding foreign exchange headwinds. This missed estimates of $3.01 billion.
Free cash flow served as a bright spot in the quarter with the metric soaring to $390 million, beating Bloomberg consensus expectations of $239 million. The company reported negative free cash flow of nearly $1 billion in the year-earlier period.
The company's direct-to-consumer (DTC) streaming business also outperformed. It added 2 million Max subscribers in the quarter, ahead of Bloomberg consensus expectations of 1.25 million and also ahead of the 1.6 million subs added in Q1 2023.
Streaming advertising revenue jumped to $175 million, beating Bloomberg estimates of $157 million and up 70% from the $103 million the company reported in the year-ago period.
The DTC division was also profitable in the quarter at $86 million, a $36 million year-over-year improvement. In February, the company revealed its direct-to-consumer streaming unit turned a profit for full-year 2023, posting $103 million in EBITDA compared with a loss of about $2.1 billion in full-year 2022.
Despite profitability hurdles, Wall Street analysts have referenced several tailwinds heading into the second half of the year, which include WBD's upcoming sports streaming partnership with Disney (DIS) and Fox (FOXA), along with its Max streaming service recently launching in markets outside of the US, including Latin America and Europe.
And on Wednesday, WBD and Disney said they would offer a bundle of the Disney+, Hulu, and Max streaming services in the US starting this summer. Customers will be able to sign up for the package, with or without ads, on any of the three platforms.
Investors have closely been monitoring further developments on NBA media rights after a Wall Street Journal report said the company is at risk of losing those rights to competitor NBCUniversal (CMCSA).
WBD CEO David Zaslav did not elaborate on the status of ongoing talks while speaking at the annual Milken Institute conference in Beverly Hills on Monday.
"We continue to be in constructive negotiations with the NBA," he said. "It’s a great league. The TNT team does a terrific job. And we love the NBA."
Separately, the company is reportedly aiming for more cost cuts and further streaming price hikes. According to Bloomberg, cost-cutting plans could include layoffs after WBD slashed 2,000 jobs over the past year. The company did not respond to Yahoo Finance's request for comment.
WBD has also been at the center of M&A talks with its two-year post-merger lockup period officially over. At Milken, Zaslav side-stepped talks about whether or not he'd be interested in acquiring a company like Paramount (PARA), which is currently seeking a buyout.
"Paramount is a great company. We have a number of great content companies. For us, our goal is to [do] the best we can with the businesses that we have," he said. "You need to look at your peers. You need to know what everyone is doing and learn from them, but ultimately, you're going to be successful if you do a good job with the assets that you have."
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X allie_canal, LinkedIn, and email her at alexandra.canalyahoofinance.com.
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