Warner Bros. Discovery (NASDAQ: WBD) stock price has collapsed to a record low as concerns about the company’s future and valuation continued. It crashed by more than 6.67% on Thursday and settled at $7.30, down from last year’s high of $16.40.
Valuation, debt, and TV concerns
Warner Bros. Discovery has become one of the worst-performing media companies this year. It has plummeted by over 35% while Netflix has soared by 36%. Walt Disney has risen by more than 10% this year.
Warner Bros. Discovery, which I have argued is an undervalued company based on a sum of parts, is facing numerous challenges. The biggest one is that it owns many television networks that have become victims of the cord cutting and decline in advertising spending.
In its recent financial results, the company said that revenues in the networks segment came in at $5.1 billion, an 8% drop from the same period in 2023. Its EBITDA also dropped by 8% to over $2.1 billion.
It is hard to see how this segment will start growing now that many people, especially the young ones, are spending most of their time in YouTube, Netflix, and TikTok. Also, while brand advertising will remain for a while, I don’t expect it to grow in the future.
Therefore, I believe that it would make sense for Warner Bros. to consider spinning off its network segment into a standalone business. Such a move would help it to shed its conglomerate discount, reduce debt, and be a leaner organisation. Based on Fox Corp’s $15 billion valuation, I suspect that this division would fetch a valuation of over $10 billion.
The remaining company would focus on the studio and its direct-to-consumer business. While the studio’s revenue also dropped, it has room to grow as the impact of last year’s strikes end. The company’s DTC business also could thrive in the future. It ended last quarter with over 99.6 million subscribers.
Warner Bros. Discovery’s stock price has also tumbled because of its huge debt. It has over $43.1 billion in gross debt and over $3.4 billion in cash on hand. The cost of servicing this debt is substantial and could limit its spending on content. WBD paid over $1.1 billion in debt in Q1, bringing the total debt paid to $10 billion.
WBD has more opportunities ahead. It has just sold its Formula E stake to Liberty Group and is set to expand its international expansion of its MAX service.
Warner Bros. Discovery stock forecast
The daily chart shows that the WBD share price has been in a strong sell-off in the past few months. It recently dropped below the crucial support level at $8.83, its lowest swing in December 2022. And on Thursday, it crossed the important support at $7.38, its lowest level this year.
WBD shares have remained below the 50-day moving average, signaling that bears are taking control. The MACD indicator has dropped below the neutral level. Therefore, the stock will likely continue falling as sellers target the psychological level of $5.
In the future, however, I suspect that the stock will bounce back as the company’s turnaround strategy continues.
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