Financial institution of America’s securities analysis workforce sees the spinoff drama at Warner Bros. Discovery over its linear TV, studios and streaming companies value viewing for outsized investor returns.
“We imagine the market worth for WBD’s Studio and DTC (direct-to-consumer) belongings standalone might far exceed the market cap of the corporate right now,” BofA Securities analyst Jessica Reif Ehrlich mentioned in a June 2 investor be aware. A break up of Warner Bros. Discovery since its 2022 merger has lengthy been weighed as a chance amongst Wall Avenue analysts, and Ehrlich sees a possible spinoff of WBD’s linear TV belongings doing the job of strategically unlocking unrealized shareholder worth.
A attainable state of affairs would see Warner Bros. studios paired with Max, leaving the Discovery linear cable channels to be carved off and left to function standalone — a possible mannequin NBCUniversal is doing with Versant. “Additional, as a standalone linear asset, we imagine there is a chance to consolidate an extended tail of linear belongings (e.g. Versant) which might be presently housed inside different media organizations,” Ehrlich argued.
Whereas the cable enterprise was a money driver for studios, the TV channels recently have turn out to be a drag on earnings, and traders have dinged firms which have been weighed down by channels tied to bundles which have quick fallen out of out of favor with customers who’ve spent as a substitute on particular person streaming providers. NBCU is spinning off most of its cable belongings — minus Bravo and together with CNBC — into a brand new firm referred to as Versant.
No potential cut up of WBD has been formally introduced. However the main studio has already begun to reorganize the corporate with a watch to a attainable spinoff of its legacy TV belongings. In Dec. 2024, the studio mentioned it had reworked its company construction into a worldwide linear TV division, separate from its streaming and studios division.
WBD added it had begun the early steps main towards the brand new company reorganization, with a completion set for mid-2025. Ehrlich mentioned the brand new company construction was designed to “improve strategic flexibility and create potential alternatives to unlock shareholder worth”, as WBD operates in two divisions.
The Wall Avenue analyst additionally addressed WBD lately being downgraded to BB+, or junk bond standing, for 2025 and 2026 by S&P World over linear TV weak spot because the Hollywood studio continues to pivot to the streaming area. “Sarcastically, we view this as a constructive improvement,” Ehrlich wrote because the downgrade doubtlessly contributes to WBD’s steadiness sheet flexibility.
Gunnar Wiedenfels, CFO of WBD, on Might 15 throughout an traders convention look put no timing on attainable “strategic motion” on the firm to raised reveal the underlying worth of studio belongings. “I can’t give a selected timeline, and there’s no particular timeline. However we positively share the view that our present share worth will not be reflecting the underlying the worth of our firm,” he mentioned.
The BofA World Analysis analyst maintained a purchase score and a worth goal of $14.00 for shares in WBD. The studio’s inventory was buying and selling up 5 cents to $9.98 in early afternoon buying and selling on Monday.