Warner Bros. Discovery, Inc. (WBD) 2024 Q1 Earnings Call Summary

Optimistic Highlights

• Subscriber Growth and Direct-to-Consumer (DTC) Momentum

  Warner Bros. Discovery is nearing the 100 million subscriber mark, with Max adding 2 million subscribers this quarter. The company is on track for robust international growth and new subscriber highs throughout the year.

• Ad Sales Acceleration

  The company is experiencing acceleration in Direct-to-Consumer ad sales and sequential improvement in linear ad sales, partly due to a record March Madness tournament and steadier overall ratings.

• Box Office Success and Creative Achievements

  Warner Bros. Discovery boasts the Number 1 box office share this year, with successes like Wonka, Dune: Part Two, and Godzilla x Kong, highlighting the company's creative successes and strong future pipeline.

• Financial Strength and Efficiency

  The company reported a $1.3 billion year-over-year improvement in free cash flow to roughly $400 million in Q1, demonstrating tangible results from its focus on transformation and efficiency.

• Strategic Partnerships and Bundling

  The announcement of a bundling partnership with Disney, offering an Ad-Lite or Ad-Free package that includes Max, Disney+, and Hulu, is expected to drive incremental subscriber growth, increase retention, and support higher customer lifetime values.

Pessimistic Highlights

• Challenges in the Gaming Segment

  The studios' Q1 financials were negatively impacted by a tough comparison in games, particularly due to the disappointing release of Suicide Squad, leading to a $200 million impact to EBITDA.

• Advertising Revenue Decline

  Total company ad sales were down 7% in the quarter, although there was sequential improvement. This decline reflects ongoing challenges in the advertising sector.

Company Outlook

• Continued Focus on Growth and Efficiency

  Warner Bros. Discovery is committed to driving top-line improvements and building upon the profitability achieved last year. The company is confident in its path to achieve its $1 billion EBITDA target for 2025, with further growth beyond.

• Strategic Content and Distribution Initiatives

  The company plans to leverage its strong content lineup, including upcoming releases and partnerships, to drive subscriber growth and engagement. The bundling partnership with Disney is highlighted as a significant opportunity for business growth.

• Investment in Technology and AI

  Warner Bros. Discovery is focusing on leveraging AI to improve ad targeting, recommendation algorithms, and overall efficiency, aiming to enhance consumer offerings and achieve greater productivity.

Q & A Highlights

• Q: Can you share details about the bundling relationship with Disney+ and Hulu? (Bryan Kraft, Deutsche Bank)

  A: The bundle with Disney+, Hulu, and Max will be priced attractively, offering a compelling consumer experience. Marketing will be supported by both parties, with the bundle prominently featured in buy flows. International bundling strategies will continue to evolve. (David Zaslav and JB Perrette)

• Q: How does the Disney bundle impact industry consolidation and investment in DTC and linear assets? (Kutgun Maral, Evercore ISI)

  A: The bundle allows Warner Bros. Discovery and Disney to focus on their strengths, offering a comprehensive package that could pressure independent services. It represents a strategic move to provide a better consumer experience and drive subscriber growth. (David Zaslav and JB Perrette)

• Q: What is your outlook for advertising at the upfronts for both DTC and linear? (Jessica Reif Ehrlich, BOA Securities)

  A: The company is optimistic about the upfronts, benefiting from a more constructive environment and a harmonized approach to selling inventory across platforms. There is a long runway for growth in DTC advertising. (David Zaslav and Gunnar Wiedenfels)

• Q: How are you matching up analytics and targeted advertising on linear networks with digital platforms? (David Joyce, Seaport Research Partners)

  A: Warner Bros. Discovery is leveraging targeted advertising and dynamic ad insertion within linear streams, especially as virtual MVPDs increase. The company sees additional opportunities for growth in both linear and DTC advertising. (Gunnar Wiedenfels)

• Q: Is there an opportunity to add other services to the Disney JV bundle? And how does advertising in DTC offset linear ad declines? (Kannan Venkateshwar, Barclays)

  A: The current bundle with Disney+ and Hulu is seen as robust and compelling, with no immediate need for additional services. DTC advertising is growing and expected to offset a larger portion of linear ad declines over time. (David Zaslav and Gunnar Wiedenfels)

• Q: How will the Disney Hulu bundle function in terms of marketing and content promotion? And are you interested in licensing content from Paramount Plus? (Rich Greenfield, LightShed Partners)

  A: Marketing for the bundle will be significant, with both parties promoting their content. Warner Bros. Discovery is always looking for good content to enhance its offering and is open to licensing opportunities. (David Zaslav and JB Perrette)

• Q: Can continuous improvement and cost savings strengthen your hand for the NBA rights? And how do bundles affect churn and ARPU? (Steven Cahall, Wells Fargo)

  A: Continuous improvement and financial discipline are key focuses, potentially impacting strategic decisions like NBA rights. Bundles have shown to improve churn and LTV, with targeted initiatives to further reduce churn. (David Zaslav, JB Perrette, and Gunnar Wiedenfels)