Netflix (NFLX -0.63%) is back from the dead. The streaming stock surged Thursday after it delivered blowout subscriber growth in its third-quarter earnings report, boosted by its paid-sharing program. It also announced another price increase in the U.S., U.K., and France.
The leading streaming service added nearly 9 million new subscribers in the third quarter and said it would see similar subscriber growth in the fourth quarter. That pace represented its fastest rate of growth since the pandemic and helped to dispel the notion that the company was done growing after it reported two straight quarters of subscriber losses last year.
The result seems to show there's still ample demand for streaming, even as growth in the industry has sputtered. Other streaming stocks mostly moved higher Thursday, modest consolation for a dismal year in the industry that's seen aggressive spending cuts at legacy companies, price hikes, and two strikes that have shut down Hollywood for nearly six months.
However, a number of these streaming stocks now trade at rock-bottom prices, much like Netflix was a year ago. This could be a buying opportunity if they can follow Netflix's lead and return to subscriber growth. One streamer, in particular, just got some great news that could help spark a comeback.
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Take it to the Max
There's no doubt that Warner Bros. Discovery (WBD -2.17%) has struggled in its brief history as a publicly traded company. It's down 58% since it was formed last April by the merger of AT&T's Warner Media and Discovery Communications. It's now valued at a small fraction of what the combined Time Warner and Discovery was worth before AT&T acquired Time Warner.
However, Warner Bros. Discovery has a number of attractive assets, including a slew of cable networks, like HBO, Warner Bros. Studios and DC Studios, and the newly rebranded Max streaming service, which is gaining traction. In fact, in Whip Media's 2023 streaming satisfaction report, Max ranked No. 1 for the second year in a row, with an 88% rating. Viewers gave it high scores on the quality and variety of original content and the service's perceived value.
Perhaps that shouldn't come as a surprise as HBO has long had a reputation for quality programming. The service is able to draw content from HBO, Warner Bros. Studios, TNT, TBS, CNN, and the Discovery channels, including HGTV and the Food Network. Max has also recently begun adding live sports to its catalog, offering a product with which few other streaming services can compete.
Can Warner Bros. Discovery make a comeback?
For all its content firepower, Warner Bros. Discovery might look like a steal at a market capitalization of just over $25 billion, but that valuation doesn't tell the full story here. The company is struggling to escape from a crushing debt burden as it finished the second quarter with $47 billion in debt and had a negative tangible value of $29 billion on the balance sheet.
Warner Bros. Discovery also posted an operating loss in its most recent quarter, showing that the company is struggling with the transition to streaming and bloated content costs and losing money even before you factor in the interest expense. However, Warner's strong ranking in viewer satisfaction, along with HBO's history of producing hit shows, should give investors some reason to be optimistic.
The company faces plenty of challenges but also has the potential to be a much more profitable business, given the strength of its core brands and content.
It's also the type of stock that is ripe for an activist investor who could push the company to cut costs, sell some of its assets to pay down debt, or advocate for a change in leadership. CEO David Zaslav, for example, has received heaps of criticism since he took the helm at the newly formed company, including for ditching the HBO name from its flagship streaming service and hiring and then firing Chris Licht to run CNN.
After its steep sell-off, Warner Bros. Discovery also has the potential to surge if it can show off a similar subscriber growth acceleration as Netflix just did. That may not happen just yet, but investors should pay attention to the upcoming third-quarter earnings report. If it's winning with audiences in streaming, it should eventually be able to win with investors as a business.
