Warner Bros. Discovery (WBD 2.15%) is down roughly 30% from where it was this time last year. But with the company's recent first-quarter results showing some positive signs, investors may want to consider picking up the stock.

Streaming is starting to show profits

Warner Bros. Discovery delivered an impressive performance in Q1 by achieving a $50 million profit and adding 1.6 million customers to its U.S. streaming unit. The result exceeded the company's earlier forecast, in which it predicted it would not break even until 2024.

Speaking on the company's Q1 investor call, CEO David Zaslav said the streaming division will likely remain profitable for the rest of 2023. "And it's worth noting HBO Max and Discovery+ are still only available to less than half of the global streaming market," continued the executive. "So there is significant runway ahead of us and we are attacking this opportunity."

While a $50 million profit in a single quarter is relatively small for a company that generates tens of billions of dollars in annual revenue, the result highlights just how infrequent positive returns are in the streaming space; according to an IndieWire report from earlier this year, of the major streaming platforms, only Netflix and Walt Disney's Hulu are profitable.

Opportunities in ad-supported content

Warner Bros. Discovery has long offered ad-supported tiers for its subscription streaming offerings Discovery+ and HBO Max (the latter of which is soon to be supplanted by Max). More recently, the company has ventured into the free ad-supported television (FAST) space, licensing out its content to Fox's Tubi as well as Roku.

"[W]e have been very pleased with the initial success," said Warner Bros. Discovery's head of streaming and games, JB Perrette, during the Q1 call. "And at some point in time, longer term, we do see [an] opportunity ... to exist in an owned and operated environment."

Perrette's comments follow previous statements by the company's C-suite about the prospect of launching its own FAST offering as early as this year. "[We have] a huge amount of content ... that hasn't been put to monetize in the marketplace," noted Zaslav last year. "[B]ut we have the ability on the FAST side to build a service without buying content."

Warner Bros. Discovery's focus on FAST comes as some industry experts anticipate substantial growth for the sector over the coming years. Research outfit TVREV predicts FAST services will account for 17% of TV ad spending in 2023, climbing as high as 42% by 2027.

Tackling the debt burden

For all the positive signals, it's important to flag that Warner Bros. Discovery still has almost $50 billion worth of debt -- an issue that has stymied the company's growth for a while. Nonetheless, the company is confident that it is getting its house in order.

"[O]n a trailing-12-month basis, we generated $2.1 billion in free cash flow, even after absorbing $1.2 billion in cash restructuring and merger-related costs," said Zaslav on the Q1 earnings call. "We are driving leverage down, generating free cash flow and continuing to build a sustainable business for the long term."

Long-term prospects

Warner Bros. Discovery's stock saw a modest increase of 4.5% after its Q1 results were published. Still, if the company is able to build on its streaming success and capitalize on the growth of FAST, investors may see the rewards over time. Of course, much of that will also depend on the company managing its debts.

As Zaslav has highlighted, Warner Bros. Discovery has spent heavily to streamline its operation. However, considering the TV industry as a whole is expected to commit $243 billion to new content in 2023, the company may still be under pressure to invest heavily -- particularly if it hopes to attract new subscribers and more marketing dollars.