Warner Bros. Discovery reports $148 million loss as sales process heats up

Warner Bros. Discovery reported a third-quarter loss of $148 million, hitting a sour note as the company began to fend off interest from potential buyers as Hollywood scrambles for a turnaround deal.

Revenue for the entertainment company, which includes HBO, CNN and Warner Bros. film and television studios, fell short of analysts’ expectations. A year ago, the company reported a profit of $135 million for the third quarter.

Revenue of $9.05 billion was down 6% from last year. The company posted a loss of 6 cents a share, compared with earnings of 5 cents last year.

Still, CEO David Zaslav spent much of Thursday’s call with analysts touting his company’s core strengths — while declining to elaborate on the company’s sales.

“It’s fair to say that we have an active process going on,” Zaslau said.

Warner Bros. Discovery insisted Thursday that it is moving forward with previously announced plans to split into two separate entities in the spring. However, Warner’s board admitted last month that it was also entertaining offers for the whole company – or part of it – after David Ellison’s Paramount expressed interest in a formal bid.

Paramount made three offers, including $58 billion in cash and stock for Warner Bros. Discovery. The bid will pay Warner stockholders $23.50 a share.

The Ellison family appears determined to win one of Hollywood’s most storied entertainment companies to pair with Paramount, which Ellison and Redbird Capital Partners acquired in August.

But Warner Bros. Discovery’s board, including Zaslav, voted unanimously to reject Paramount’s offers and instead open the auction to other bidders, which is expected to change hands for the third time in a decade.

Board members are betting that the company, which has shown a turnaround, has more value than Paramount’s offers on the table. Warner shares fell 1.5% to $22.42 on Wednesday.

“Overall we are very strong,” Zaslav said of the company’s business prospects.

“When you look at our films like ‘Superman,’ ‘Weapons’ and ‘One War After Another,’ the global reach of HBO Max and the diversity of our network offerings, we’re able to bring the best, most treasured traditions of Warner Bros. to a new era of entertainment.” [a] A new media landscape,” he said.

But the company’s results highlighted its business challenges.

Warner Bros. Discovery witnessed a major decline in advertising revenue in the third quarter, reporting $1.41 billion, down 16% from a year earlier, which executives attributed to declining viewership for its domestic linear channels, including CNN, TNT and TLC.

Distribution revenue for the networks also took a hit, as the company reported sales of $4.7 billion, a 4% decline from last year.

Studio revenue rose 24% to $3.3 billion, powered by the success of DC Studios’ “Superman,” horror flick “Weapons” and the latest installment of “The Conjuring.” But even box office wins can’t fully make up for shortcomings in other areas of its content business.

Last year, the company was able to sub-license the broadcast rights to the Olympics in Europe, bringing content revenue to $2.72 billion. But this year, revenue fell 3% to $2.65 billion.

Burbank-based Warner Bros. has had a string of successes in theaters, with nine films opening at number one at the worldwide box office. The studio recently reached $4 billion in worldwide box office revenue, making it the first studio to do so this year.

Warner Bros. achieved the latter goal in 2019.

Zaslau wants to continue with Warner’s breakup plans, which were announced in June.

The move will allow him to manage a smaller Hollywood-focused entity made up of Warner Bros. Studios, HBO, streaming service HBO Max and the company’s extensive library, which includes the “Harry Potter” films and award-winning TV shows such as “The Pit.”

The company’s major portfolio of cable channels, including HGTV, Food Network and Cartoon Network, will become Discovery International and operate independently.

Beyond Paramount, Philadelphia-based Comcast, Netflix and Amazon have expressed interest in buying parts of the company.

Warner Bros. Discovery said its third-quarter loss was the result of a $1.3 billion charge, including restructuring costs.

TD Cowen media analyst Doug Kratz noted strong results at the movie studio and HBO Max streamer, which added 2.3 million subscribers in the quarter to reach 128 million worldwide. Critz Inc. has a “hold” on Warner’s stock, but raised its price target to $22 a share.

“Our new price target assumes an 80% probability that WBD will be bought at the estimated price of $25, and a 20% probability that no deal will occur,” Kreutz wrote in a note to investors.

MoffettNathanson analyst Robert Fishman added in a separate report to investors: “Now that [third-quarter] The results are behind us without any major surprises, we will expect more discussions about a possible bid in the coming weeks.