Q3 2024 Earnings Summary
- WBD's Max streaming service added over 7 million net subscribers in Q3, driving significant EBITDA growth, and expects continued revenue, profit, and subscriber growth in future quarters .
- The Studios segment is set to bounce back profit-wise next year, with expectations to reach $3 billion and then further growth, driven by improvements across the film group, TV production, franchises, games, and content licensing, leading to sustainable long-term growth .
- Strategic partnerships and potential industry consolidation are seen as opportunities to enhance shareholder value and improve consumer experience, with WBD engaging in partnerships like the Disney Max Hulu bundle to drive subscriber growth .
- Studio business recovery may take longer than expected, as the financial impact of changes will take time to become visible.
- Net leverage increased to 4.2x, and the company expects to delever more modestly than initially planned due to studio shortfalls and impairments.
- Management did not commit to any strategic asset sales or spin-offs, potentially missing opportunities to unlock shareholder value.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | -4% YoY (from $9,979 million to $9,623 million) | The decline reflects continued softness in the U.S. linear market and lower content licensing revenues, partially offset by growth in Direct-to-Consumer (DTC). Macro pressures on the advertising market also contributed to lower top-line performance. |
Studios | -17% YoY (from $3,226 million to $2,680 million) | The biggest drivers were lower TV licensing and fewer major theatrical releases compared to the prior year. Additionally, fewer third-party licensing deals and the shift toward keeping more content on internal platforms reduced external sales revenue. |
Direct-to-Consumer (DTC) | +8% YoY (from $2,438 million to $2,634 million) | Growth was led by new subscriber additions, increased adoption of the ad-supported tier, and international expansion. These gains more than offset subscriber churn in some mature markets. The integration of legacy DTC platforms and improved cost discipline also played a role in revenue growth. |
Operating Income | +190% YoY (from $97 million to $281 million) | The substantial increase was driven by merger-related cost synergies, lower restructuring expenses, and streamlined operations across segments. Lower depreciation and amortization compared to the prior year also contributed to the improved operating income. |
Net Income | $135 million (swung from -$446 million YoY) | A combination of cost synergy realization, reduced restructuring charges, and improved performance in key areas like DTC turned net losses into positive net income. Stronger free cash flow and fewer one-time expenses also helped bolster net results. |
EPS (Diluted) | $0.06 (up from -$0.17 YoY) | This improvement mirrors the net income swing, stemming from favorable cost reductions, higher operating income, and lower acquisition-related charges. The year-over-year EPS uplift also reflects fewer one-time items impacting share count and profitability in the current period. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Net Leverage | FY 2024 | Expects to finish 2024 with lower net leverage than at the start of year | Expected to delever year-over-year, though more modestly than initially planned | lowered |
D2C EBITDA | FY 2025 | At least $1 billion | Meaningfully above $1 billion | raised |
Content licensing | FY 2025 | No prior guidance | Return to more normalized availability levels starting in FY 2025 | no prior guidance |
Subscriber-Related Revenue Growth | Q4 2024 | No prior guidance | Expected to continue strong growth | no prior guidance |
D2C EBITDA | Q4 2024 | No prior guidance | Nearly $300 million | no prior guidance |
ARPU | Q4 2024 | No prior guidance | Anticipated to trend lower | no prior guidance |
Free Cash Flow | Q4 2024 | No prior guidance | Expected healthy conversion of EBITDA despite higher content spend | no prior guidance |
Studios EBITDA | Q4 2024 | No prior guidance | Expected to increase year-over-year by a few hundred million | no prior guidance |
Games Business | Q4 2024 | No prior guidance | Expected to be flat to modestly better year-over-year | no prior guidance |
Film Business | Q4 2024 | No prior guidance | Forecasted to perform in line with Q4 2023 | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Studios Segment | Q3 2024 | "Improvements expected in TV production business post-strike" | 2,680 million, up from 2,449 million in Q2 2024 | Met |
Networks Segment | Q3 2024 | "Decrease in distribution and network ad revenue" | 5,010 million, down from 5,272 million in Q2 2024 | Met |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
DTC subscriber growth and profitability | Recurring mentions of steady subscriber gains (Q2: +4M subs; Q1: +2M subs) and ongoing drive toward $1B+ DTC EBITDA by 2025. | Strong DTC results with +7.2M subs added, surpassing 110M total; EBITDA up 175% YoY. | Consistently positive, continued momentum |
International expansion of Max | Progressive rollouts in Q2 (65 markets) and Q1 (39 countries) with emphasis on local content, ad-supported tiers, and partnerships. | Expanded to 65 markets, with plans for Southeast Asia (2024) and Australia (2025); seen as key growth driver. | Recurring focus on global growth |
Linear networks revenue pressures and secular decline | Discussed 8%-9% ad revenue declines (Q2 & Q4) and the secular shift away from pay-TV. | Acknowledged continued revenue pressures and secular challenges in linear TV; referenced Charter deal to stabilize business. | Ongoing negative headwind |
Gaming segment performance and write-downs | Prior notes of lumpy results and impairments tied to underperforming launches (Q2 & Q1), with Hogwarts Legacy being a positive outlier. | Added $100M+ impairment (Q3), focusing on four core franchises to reduce volatility; total write-downs >$300M. | Recurring, more cautious outlook |
Motion Picture studio profitability and franchise management | Emphasized studio discipline (Q2 & Q1), leveraging major IP like Lord of the Rings and Harry Potter; saw strong box office in Q1–Q2. | Cited inconsistent profitability; “Joker 2” disappointment drove push for better greenlight governance and franchise oversight. | Continual improvements, still uneven |
NBA broadcasting rights uncertainties | Q2 mentioned litigation over matching rights; Q4 described constructive but costly negotiations. | No direct details provided about NBA rights in Q3; focused on other content partnerships. | Not reiterated in Q3 |
Bundling with Disney+ and Hulu | Mentioned in Q2 and Q1 as a key bundling strategy to broaden audience, reduce churn, and boost retention. | Acknowledged Disney Max Hulu bundle driving sub growth; “early but very good progress”. | Ongoing bundle strategy |
Goodwill impairment in linear networks | $9B impairment in Q2 tied to Networks segment and market cap vs. book value disparities. | No mention of goodwill impairment this quarter. | Mentioned only in Q2 |
Charter distribution deal | Not referenced in prior quarters. | Newly highlighted as an innovative agreement bundling linear networks and ad-light Max for Charter subscribers. | New topic in Q3 |
Reversal of strike-related free cash flow benefits | Discussed in Q4 only, where they expect $1B of benefit from 2023 to reverse in 2024. | No reference to strike-related FCF reversals this quarter. | New in Q4, absent in Q3 |
Focus on deleveraging and free cash flow improvements | Repeated theme: Q2 repaid $3.4B in debt via tender; Q1 improved FCF by $1.3B; Q4 ended 3.9× net leverage. | Reported 4.2× net leverage; used $630M FCF to pay down debt, reaffirming 2.5×–3× long-term target. | Consistently emphasized |
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Studio Profit Outlook
Q: Can you discuss expected profit rebound in Studios next year?
A: Management anticipates the Studio segment will bounce back profit-wise across the board next year, with better results in the film group, continued momentum in TV production, and recovery in the games business. They are confident in seeing $3 billion or more in growth from the Studio segment, although the exact timing may vary. Content licensing is also expected to be higher from the 2024 starting base. -
Integrated Business Structure
Q: Why keep all businesses together despite growth and decline in different segments?
A: Management believes strongly in the benefits of operating as an integrated company. They see significant returns from running WBD as one entity, particularly in content where synergies across segments enhance value. They acknowledge the current stock price doesn't reflect the underlying value and are focused on enhancing shareholder value. -
Industry Consolidation Prospects
Q: What are your views on potential M&A and industry consolidation?
A: Management emphasizes the need for meaningful consolidation in the industry to improve the consumer experience, which currently involves navigating multiple apps. They believe consolidation could provide a better consumer experience and create stronger businesses. An upcoming new administration may offer opportunities for consolidation, providing a real positive impact on the industry. -
Cable Networks Sustainability
Q: How confident are you about upcoming renewals with Comcast and Sky, especially without the NBA?
A: While not discussing specific deals, management expressed confidence based on longstanding relationships and successful collaborations. They emphasize their valuable content and significant contribution to the basic cable bundle, which is recognized by distributors. They expect to continue working closely with partners like Comcast and Sky in the future. -
DTC Subscriber Growth
Q: How will you close the subscriber gap with competitors like Netflix?
A: Management sees significant opportunity to grow subscribers, especially among price-sensitive households. Strategies include expanding the ad-supported tier, introducing bundles (e.g., with Disney and Hulu), and leveraging partnerships. They have observed that past price increases resulted in lower than expected churn, indicating pricing power. -
Pricing Power in DTC
Q: How much can price increases drive DTC revenue in coming years?
A: Management believes they have room to continue raising prices due to the premium nature of their product. Previous price rises resulted in lower than projected churn. They also plan to address password sharing, effectively acting as a price increase. International markets present additional opportunities for price adjustments. -
Advertising Revenue Growth
Q: What is your plan to scale advertising in DTC, and when will you get there?
A: Management is in the early stages of growing advertising revenue in DTC by increasing reach of the ad-supported tier, modestly increasing ad load (which is currently light), and innovating in ad formats. They believe these three levers will provide significant scale in advertising revenue over time. -
Cost Reduction Strategies
Q: How do you plan to lower costs in linear networks to offset revenue declines?
A: Management will continue to be disciplined and focused on cost reductions, implementing structural measures that have taken longer to realize. They have taken out billions of dollars from the cost base despite inflation. Investments in sports with high margins and a largely fixed cost base are expected to help offset revenue pressures. -
Distributor Partnerships
Q: Are you discussing similar structures to the Charter agreement with other distributors?
A: Management is encouraged by the innovative deal with Charter and hopes other distributors will adopt similar models. They are in discussions with some who are interested in pursuing such partnerships, aiming to provide a contemporary consumer experience that combines streaming and traditional multichannel options.