Discovery Earnings Rise as Pay-TV Subscriber Losses Stabilize

The content giant had some good news for investors in its second-quarter report.

Demitrios Kalogeropoulos
Demitrios Kalogeropoulos
Aug 6, 2019 at 4:28PM
Consumer Goods

Investors have been happy with Discovery (NASDAQ:DISCK) (NASDAQ:DISCA) (NASDAQ:DISCB) following its merger with Scripps Networks, which created one of the biggest pay-TV content platforms on the market. The company's aggressive pivot toward digital delivery is starting to pay off as well, even as advertising revenue stabilizes in the broadcast TV industry.

Discovery on Tuesday announced second-quarter earnings that showed continued progress along these major strategic initiatives.

Here's how the headline numbers compare with the prior-year period:

Metric

Q2 2019

Q2 2018

Change

Revenue

$2.9 billion

$2.8 billion

1%

Net income

$987 million

$244 million

305%

Earnings per share

$1.33

$0.30

343%

Data source: Discovery's financial filings.

What happened with Discovery this quarter?

Discovery's sales benefited from growth in both the U.S. and international segments thanks to strong advertising demand and increasing distribution fees. These gains more than offset a continued -- but slowing -- decline in the subscriber base for traditional broadcast television packages.

A mother and daughter watching TV and eating popcorn on a rug in front of a couch

Image source: Getty Images.

Highlights of the quarter included:

  • Discovery notched significant ratings wins, including holding the leading TV network spot for women in the 25-54 age range. This success helped advertising sales rise 6% in the U.S. segment despite a falling subscriber base. A 5% increase in distribution fees contributed to solid revenue growth for the network in its home market.
  • The international segment grew sales by 3% after adjusting for currency exchange swings.
  • The pace of subscriber losses slowed to 3% from 4% in the prior quarter as the shift toward internet-delivered entertainment slackened.
  • Adjusted profit rose 7% after accounting for exchange rate moves and one-time restructuring benefits. Savings from the merger with Scripps Networks powered reduced content costs and falling expenses, consistent with management's forecast.

What management had to say

CEO David Zaslav said Discovery built on its solid start to 2019 over the last few months. "We delivered another quarter of strong operating and financial performance," he said in a press release, "with the benefits of the Scripps Networks acquisition flowing through all areas of our global business." The company also made progress in "accelerating our pivot to digital and direct-to-consumer offerings with [content] that powers people's passions," Zaslav explained.

"With ... strong top-line performance and a healthy balance sheet," Zaslav continued, "we are confident in our ability to continue executing our strategic priorities."


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Looking forward

Those priorities include more initiatives targeting internet-delivered content, whether it's through Discovery's own platform or through partnerships with companies like YouTube. Discovery launched nine additional networks on the streaming leader's site this past quarter, and investors can expect more moves like that.

Meanwhile, shareholders are likely relieved to see that advertising demand appears healthy across Discovery's portfolio. That trend is combining with slowing pay-TV subscriber losses to support accelerating revenue growth.

At the same time, synergies from the Scripps Networks merger are helping profitability steadily improve. These metrics imply Discovery will have a strong second half of the year to give it healthy momentum heading into 2020.