Investors in Warner Bros. Discovery (WBD -1.84%) have had a challenging year, with the stock down 48% in the last six months and almost 12% since July. Warner Bro. Discovery was formed in April from the merger of WarnerMedia and Discovery, saddling the new company with $55 billion of debt.

As a result, CEO David Zaslav has made multiple cost-cutting moves, such as canceling many international projects, laying off executives, and canceling a nearly completed DC film. The drastic changes haven't all sat well with consumers or investors, leading to a sharp decline in the share price.

But significant progress in paying down debt in its first four months of business and its long-term strategy make the company a bargain for investors willing to hold for several years. 

Positive inroads

When Warner Bros. Discovery officially formed in April, Zaslav vowed to find $3 billion in cuts. At the time, Zaslav said, "We don't know exactly how it's going to work," but broadly stated that the cuts would likely come from streaming and television. The company's strategy has slowly unfolded over the last few months, with the almost immediate termination of the streaming service CNN+, countless canceled series and films, and an increased focus on theatrical releases.

Zaslav's dramatic alterations to content strategy have come quickly and seem drastic as a plummeting stock price highlights skepticism from investors. However, the hefty cuts have also been a leading contributor to $6 billion in debt reduction between April and August.

As part of a separation agreement, AT&T paid Warner Bros. Discovery $1.2 billion in August, helping to reduce its deficit. But 80% of the $6 billion came from the company's cost-cutting.

The considerable dent in the company's debt is impressive because at the same time, Warner Bros. Discovery lost its $90 million investment in the DC film Batgirl after closing down production and $1.5 billion from its streaming segment in its first quarter. Despite these significant losses, the company's ability to persevere and continue to pay down debt suggests an optimistic outlook for its future. 

A waiting game

Warner Bros. Discovery has a lot to overcome before its stock begins trending upward again. Besides controversial content moves, the company has received backlash from a lack of diversity among HBO executives and suggestions that its content slashes are harming its relationship with talent. 

The company responded to criticism of its lack of diversity, highlighting shows such as Euphoria and stating, "HBO and HBO Max have always shown a commitment to diverse programming and storytellers, and always will." But those comments have done little to quell public censure. Instead, action and financial results may be necessary to repair its image and call investors back.

The recent slashing of its business isn't all bad news. Shutting down CNN+ and a planned merger of its streaming services HBO Max and Discovery+ are eliminating risks and prioritizing profits. With a looming debt of $50 billion, it makes sense to shrink down now and wait to expand again when the company is more financially able.

A promising aspect of Zaslav's strategy is his recent commitment to theatrical releases, moving away from producing films for streaming. Throughout the COVID-19 lockdowns in 2020 and 2021, WarnerMedia lost hundreds of millions of dollars by releasing films simultaneously on streaming and in theaters. For instance, the 2020 sequel to Wonder Woman made 80% less than the 2017 film, a difference of $626.2 million.

Warner Bros. Discovery has multiple DC films for release in 2022 and 2023 that are essentially rebooting the franchise, with its next four films having the potential to earn anywhere from $3.1 billion to well over $4 billion if DC's films before 2020 are anything to go by.

An opportunity for investors

The company's debt might linger for years, but patient investors will likely reap the rewards at its current stock price. The price-to-earnings ratio was 6.5 as of Aug. 29, a 46% decrease since April, suggesting investors' skepticism might not reflect the company's true worth.

With the stock 48% down year to date and a severely trimmed-down business seemingly getting smaller by the day, Warner Bros. Discovery is likely to eventually climb out of its $50 billion hole and be on its way to profits, making the stock an excellent long-term buy.