What happened
Shares of Warner Bros. Discovery (WBD -2.17%) were taking a dive last month as the entertainment conglomerate felt the impact of the Disney-Charter dispute at the beginning of the month and as broader market sentiment soured.
The company also cut its earnings before interest, taxes, depreciation, and amortization (EBITDA) guidance and made several changes to streaming platforms as it continues to refine its business strategy during a time of rapid change in the media landscape. Meanwhile, fears of higher interest rates prompted a broader sell-off weighing on Warner Bros. Discovery stock, which is dependent on consumer and advertiser spending.
As a result, the stock finished September down 17% according to S&P Global Market Intelligence.
As the chart below shows, the stock fell sharply at the beginning of the month on the Disney-Charter news and headed lower in the second half of the month.
So what
The worst day for Warner Bros. Discovery last month came on Sept. 1 as Disney pulled its cable programming for Charter's Spectrum cable services over a distribution dispute.
The disagreement was the latest sign of trouble for the entertainment giant and centered around Charter wanting to include Disney's streaming services in its cable bundles.
Notably, Warner Bros. Discovery and Paramount Global took the news harder than either Disney or Charter as investors seem to believe that they could be squeezed by cable providers, or that the dispute shows yet another challenge with the transition to streaming.
The following week, Warner Bros. Discovery lowered its adjusted EBITDA guidance by roughly $500 million to $10.5 billion to $11 billion due to the impact of the actors and now-ended writers' strikes. It did, however, raise its free cash flow to $5 billion for the year as it said it would save on short-term expenses and saw a lift from the strong performance of Barbie.
Over the duration of September, the company announced plans to launch a sports tier for its flagship Max streaming service, and the stock slid again toward the end of the month despite an agreement to end the writers' strike.
Now what
Warner Bros. Discovery has been a disappointment since the company was formed by the merger of Warner Media and Discovery Communications, but the stock may finally be getting too cheap to ignore.
The underlying business is profitable despite headwinds in streaming, but the company needs to chip away at its roughly $50 billion debt burden. With its stock price now under $10, the stock could start to recover if the company can show progress in improving its balance sheet.
We'll learn more when the company reports earnings early in November. Analysts expect revenue to fall 2% to $10.15 billion and an adjusted loss per share of $0.04.
