A stock market sell-off in 2022 has led the Nasdaq Composite index to fall 30% since January. Rising inflation and interest rates have slowed consumer spending and caused multiple companies to report weakening earnings.
Warner Bros. Discovery (WBD 0.97%) has been one of the hardest hit this year, with its shares falling roughly 55% year to date as its consumer-reliant segments suffer from macroeconomic headwinds. It has been an arduous year, but the company is home to a valuable content library and popular streaming services that could take it far over the long term.
Here's why a stock market sell-off makes this an excellent time to buy shares in Warner Bros. Discovery.
Warner Bros. Discovery's troublesome beginnings
In April, Warner Media spun off from AT&T and merged with Discovery, forming Warner Bros. Discovery. The new company absorbed the $43 billion cost of the merger as debt and has been working to pay it down ever since. In doing so, the company's CEO, David Zaslav, has made a number of controversial moves with profitability in mind.
Decisions such as shutting down production on an all-but-complete $90 million DC Comics film, scrapping numerous family and animation projects, and letting go of some top executives, have all plagued the company's stock over the last year as investors grow doubtful of Warner Bros. Discovery's immediate future.
The considerable debt and troubling quarterly results have spooked investors, most recently evidenced by its stock's 13% decline on Nov. 3, when the company posted earnings for the third quarter of 2022. Revenue declined 11% year over year to $9.82 billion, missing analysts' expectations of $10.36 billion. Warner Bros. Discovery's losses were primarily fueled by post-merger restructuring costs and a tough advertising market that has also plagued companies in the industry such as Alphabet.
While the entertainment company has had a rocky start, many of its issues will likely iron out as Warner Bros. Discovery gets past its post-merger transitional phase and the economy improves in the long term.
A bargain buy
Warner Bros. Discovery is home to some of the world's most popular film and TV franchises, including Game of Thrones, Harry Potter, and DC Comics. The company has maximized profits on its top brands by creating sequels and spin-offs of the original content, as well as expanding into video games and theme parks.
Its most recent success came from the Game of Thrones spin-off House of the Dragon, which premiered on HBO and HBO Max on Aug. 22. The show averaged 29 million viewers an episode in the U.S. and became the most viewed HBO title ever abroad.
The success is especially promising considering Warner Bros. Discovery's upcoming plans to merge HBO Max and Discovery+. Subsequent seasons of House of the Dragon and additional planned spin-offs of Game of Thrones could go a long way in attracting new subscribers and bolstering the prospects of its streaming initiatives.
Moreover, the company's stock has an average 12-month price target of $20.74. That's roughly 95% above its current price at the time of this writing. Along with a price-to-earnings ratio of 13, the company's financial prospects are in better standing than its stock price would suggest.
Warner Bros. Discovery expects its restructuring to be largely completed by the end of 2024, which could make the company's stock an excellent long-term investment. With a packed release schedule of DC films coming throughout 2023, multiple highly anticipated video games, including Harry Potter-themed Hogwarts Legacy in February, and its launch of the revamped HBO Max/Discovery+ platform, Warner Bros. Discovery has excellent prospects.
The entertainment titan may have suffered considerably at the hands of a stock market sell-off in 2022, but its valuable content library and upcoming developments could mean substantial gains for the long haul.
