Warner Bros. Discovery (WBD 0.97%) has had a bumpy 12 months. The story of this new company -- created from a merger between WarnerMedia and Discovery earlier this year -- has been all about cost-cutting and canceling projects. And the stock price is down more than 50% over the past year.
Yet, despite the ups and downs, there are clues that Warner Bros. Discovery is undervalued right now, especially considering how its future is shaping up. Here are three reasons why Warner Bros. Discovery is a great buy today.
DCEU movies are coming back to theaters
It has been more than a year since the rollout of a DC Extended Universe (DCEU) superhero movie. The Suicide Squad launched in August 2021 as a day-and-date release, hitting Warner Bros. Discovery's HBO Max streaming platform at the same time it landed in theaters. The sequel pulled in just $168 million in global box office receipts, far below the $747 million of its similarly named predecessor. Indeed, in the year since the release of The Suicide Squad, Walt Disney (DIS -0.45%) has launched five Marvel movies, which have collectively generated almost $4 billion in ticket sales.
Warner Bros. Discovery's next DCEU release is Black Adam, which will debut exclusively in theaters in October 2022. The movie stars Dwayne Johnson, one of the most bankable actors in the world, and it will be followed in 2023 by four more DCEU big-screen projects. And while the success of future films is always hard to predict, it's not unusual for superhero films to top $1 billion at the box office. In pre-pandemic 2019, four movies crossed the billion-dollar barrier, including Avengers: Endgame, the biggest-grossing film of all time at $2.6 billion.
The return of DCEU films to the big screen coincides with audiences showing more comfort about visiting movie theaters. There were several big draws for audiences over the summer, including Top Gun: Maverick (almost $1.5 billion worldwide gross) and Jurassic World Dominion (just shy of $1 billion), which could bode well for Warner Bros. Discovery. If Black Adam and the subsequent DCEU movies can capitalize on the trend, stakeholders will have much to be happy about.
A mission to save $3 billion in overhead
Warner Bros. Discovery CEO David Zaslav has been touting his company's efforts to slash $3 billion in overhead. The process has so far mainly played out via the axing of several projects, including an HBO Max Batgirl movie, along with the shedding of dozens of roles. And if reports are to be believed, it seems Warner Bros. Media has plans to cut hundreds more jobs soon.
It's natural that the merger of two companies would lead to overlapping departments and positions, and so it's perhaps inevitable some jobs would have to go. And it's a clear sign that Warner Bros. Discovery is on track to get the company in shape for the next chapter of its existence -- the blending of HBO Max and Discovery+.
A single home for all the content
Ever since the formation of Warner Bros. Discovery, the company has found itself operating two separate streaming platforms. However, in the summer of 2023, that will change as HBO Max and Discovery+ will converge under a yet-to-be-disclosed name. This merger will not only simplify Warner Bros. Discovery's offerings, but it may also provide an opportunity for price hikes.
As things presently stand, commercial-free HBO Max costs $14.99 per month, while the ad-supported plan is $9.99 per month. Discovery+ is $6.99 a month without ads or $4.99 a month with ads. However, there is consternation within the company that these prices cannot hold.
During a recent tech conference, Warner Bros. Discovery CFO Gunnar Wiedenfels posited that HBO Max and Discovery+ in their current form are "fundamentally underpriced." Wiedenfels went on to explain that the company may well have scope to raise prices, though he did not discuss how or when such changes might happen.
It's worth noting, of course, that, at approximately $15 a month, ad-free HBO Max is close to par with Netflix's $15.49 a month Standard tier, so going much beyond that figure could be off-putting for consumers. However, with Walt Disney's Disney Bundle (Disney+, Hulu, and ESPN+) priced at $19.99 per month, it could be argued that Warner Bros. Discovery has some room to maneuver.
Nonetheless, considering the direction of travel for Warner Bros. Discovery, the firm's current sub-$15 share price certainly seems to overlook the company's near- to- mid-term potential. If Black Adam performs well next month, then expect to see Warner. Bros Discovery's share price begin to climb.
