What happened
Shares of Warner Bros. Discovery (WBD -1.69%) headed lower in May as a disappointing earnings report combined with generally negative sentiment toward streaming stocks in the second half of the month as well as pressure from the writers' strike.
According to data from S&P Global Market Intelligence, the stock sank by 17.1% in May. As the chart below shows, it moved fairly steadily lower over the course of the month.
So what
Warner Bros. Discovery, which was formed last year by the merger of AT&T's WarnerMedia unit with Discovery Communications, actually gained some ground temporarily following its earnings report, despite the weak results.
The company posted a 5% decline in revenue to $10.7 billion, which was slightly below estimates at $10.78 billion. It also posted revenue declines in all three of its business segments. For the studios unit, which includes Warner Bros. and DC Studios, revenue declined from a pro forma of $3.5 billion in the quarter a year ago to $3.2 billion. In its cable networks, which include TBS, CNN, and Discovery, revenue declined from $6.3 billion to $5.6 billion, and its streaming-based direct-to-consumer (DTC) segment saw revenue fall slightly from $2.515 billion to $2.455 billion, even as it added 1.6 million subscribers.
On the bottom line, the company reported a generally accepted accounting principles (GAAP) loss of $0.44 per share, which compared to expectations of a $0.01 per share profit.
The company did say that it expected the DTC business to be profitable in 2023, a key component to its growth story, as the legacy media business is expected to decline.
Over the rest of the month, the stock drifted lower on concerns that the fight for profitability in the streaming sector would weigh on all the major participants. Meanwhile, the writers' strike continued, delaying the production of new content, and the resolution of that strike could require studios like Warner Bros. Discovery to pay more for that content.
Now what
Warner Bros. Discovery stock has rebounded strongly so far in June on rumors that the connected TV ad market is recovering, and investors seemed to cheer news that CNN chief Chris Licht had been forced out after a tumultuous year helming the cable news organization. It also sparked rumors that CNN could be put on the auction block.
Warner Bros. Discovery has a wealth of entertainment assets and valuable intellectual property, but it also carries a heavy $49 billion debt burden following the merger, and it's dealing with a challenging transition to a more streaming-centric business model, which has sunk other legacy media stocks in recent months.
Even with all of its valuable assets, finding success won't be easy for Warner Bros. Discovery.
