What happened

Media company Warner Bros. Discovery's (WBD -2.16%) stock dropped 11.7% in August, according to data provided by S&P Global Market Intelligence. The newly formed company gave a tepid earnings report, and investors aren't sure what to make of the company yet.

So what

Warner Bros. was created in April when AT&T spun off WarnerMedia and merged it with Discovery in April. The idea was to create a more competitive media company in the wake of the burgeoning streaming industry. The company has a lot going for it, but before it can emerge as a strong player, it needs to smooth out the wrinkles of its formation. 

If it operated in the form in which it was created, most of those wrinkles would amount to absorbing restructuring charges. But CEO David Zaslav is making many changes, such as his initial slashing of the brand new CNN streaming service right after it launched. Warner Bros. Discovery is also balancing its licensing agreements, revamping its distribution strategy, and refocusing on business efficiency. So there's plenty of uncertainty while the company figures itself out, even though its media assets already make it a formidable contender in streaming and other networks.

In the meantime, second-quarter revenue of $9.8 billion was a 1% year-over-year decline, and net loss came in at $3.4 billion, down from earnings of $672 million last year. Much of that was due to restructuring charges.

Now what

The new company merges streaming companies HBO Max and Discovery+, providing viewers with a vast array of streaming options in addition to content on its TV and cable networks. That's also on top of film releases, putting Warner Bros. Discovery in an excellent position from which to compete with Netflix and Walt Disney.

Investors shouldn't expect it to be an overnight sensation, though. It's still launching in many major markets and won't reach capacity for several years.

It's guiding for peak loss before interest, taxes, depreciation, and amortization this year and to break even in 2024, and it anticipates reaching 130 million subscribers by 2025, up from 92.1 million at the end of the second quarter.

This might end up being a competitive company, and it certainly has the assets and management to beef up its business. However, considering where it is right now, investors can probably find better investments out there. It's a stock to keep on your watch list.