That The firm maintained its market perform rating on Warner Bros. Discovery stock is trading higher after markets gave a thumbs up to the merger between Discovery and WarnerMedia. All rights reserved. Consequently, I rate WBD as a HOLD. On 7.14 billion current shares, that's about $1.18 per share, just a little more than half the $2.18 payout today. Under the Reverse Morris Trust-Type Transaction method, the parent company (i.e. The conversion will ultimately result in 71% AT&T shareholder ownership in WBD, with the remaining 29% ownership in WBD attributable to Discovery shareholders. Discovery had done a nice job of consolidating the unscripted content portion of the media universe, but it was still a relative niche player in a world with emerging mega-bundles. But it said that the ongoing reorganization, expected to be largely complete by the end of next year, could result in additional impairments above the revised estimates.. ET. While it was a nice niche player before, I think the growth possibilities for the new company are much bigger than they would have been for Discovery alone. Discovery's Stock, 2 Growth Stocks That Can Turn $250,000 Into $1 Million by 2030, Billionaire Investor Bill Ackman Is Raking In $97 Million In Annual Dividend Income From These 2 Stocks, 1 Bargain-Basement Warren Buffett Stock Down 78% to Buy Before It Starts Soaring, 3 No-Brainer Stocks to Buy With $50 Right Now, Join Over Half a Million Premium Members And Get More In-Depth Stock Guidance and Research, Motley Fool Issues Rare All In Buy Alert, Copyright, Trademark and Patent Information. Cost basis and return based on previous market day close. The European Commission, the executive body of the European Union, had approved the deal in December. Shares of Warner Bros. The strongest case for WBD is the massive supply of content associated with WarnerMedia. Zaslav, in the companys earnings release, said that major restructuring decisions were behind us. However, Warner Bros. Lawrence Nga has no position in any of the stocks mentioned. The Wall Street Journal this month reported that Warner Bros. Sign up for our daily newsletter for the latest financial news and trending topics. Discovery's share price when the new company began trading earlier this year. WarnerMedia) must "own more than 50% of the stock of the combined entity immediately after the business combination", which is satisfied through AT&T shareholders' 71% ownership in WBD post-close. Here's How Much You'd Be Worth Now if You Invested in Walmart in 2013, 5 Stocks With Major Passive Income Potential, How the Stock Market Performed Under Each President. Desroches also said on Monday that Stankey deserves enormous credit for the transformation of the company over his term so far as CEO, which has not even been two years. The potential synergies and economies of scale looked to position the combined company well to compete in the media and entertainment industry. With the 5G transition in full swing, the company can't afford to be distracted with the streaming media wars, paying down debt, and maintaining the dividend all at once. That will simplify things a whole lot, both for the companies and their investors. Discovery, Wall Street is turning its attention to the outlook for the new conglomerates stock that began trading on Monday under the ticker symbol WBD.. Is This the Best Streaming Stock for 2023? I have no business relationship with any company whose stock is mentioned in this article. There is meaningful churn on HBO Max, much higher than the churn that we have seen. Due diligence should be exercised and readers should engage in additional research and analysis before making their own investment decision. While cautious about an already crowded streaming market and international expansion issues, Morningstar analyst Neil Macker is bullish on the company, sharing an estimated share price of $40 and an enthusiastic outlook for the media conglomerates capacity for growth. Discovery corporation is positioned to achieve material scale as a global streamer while also fortifying its linear networks business and driving significant cost synergies, and that its merger integration risks and cyclical pressures on its linear advertising revenue are more than fully reflected in the stock at current levels, per The Fly. Disclosure: I/we have a beneficial long position in the shares of DISCK either through stock ownership, options, or other derivatives. net asset value under U.S. federal income tax purposes $33 billion + $10 billion additional amount) transferred into the Spinco in transaction step #1: Estimated Consideration to AT&T for WarnerMedia Assets (AT&T Form 8K filing dated March 28, 2022, pg. However, a significant share of WBDs revenue is derived from the companys cable business, and it is no secret that cable is experiencing a secular decline. Discovery Communications and its three share classes will no longer exist as the company, unlike AT&T, will fully be merged into Warner Bros. However, I admit I have reservations regarding the companys debt load and financial prowess. Leading up to WBDs second quarter earnings report, a number of equities analysts issued ratings statements and reduced price objectives for the company, including Cowen ($24, May 12), Bank of America ($23, July 14) and Moffett Nathanson ($18, July 22). I am a also value / buy and hold investor. Discovery Stock Rises Following Merger Completion, Ricou Browning, Star of Creature From the Black Lagoon, Dies at 93, It's Always Sunny in Philadelphia Teases Gritty Cameo, Pokemon Cosplay Celebrates Misty's Anime Comeback, Burger King Adding Spicy Chicken Fries to Menu, Jon Hamm Reportedly Engaged to Mad Men Co-Star Anna Osceola, Josh Gad Takes Over as Jungle Cruise Skipper at Disneyland, AMC Theatres to Launch New Lines of Popcorn at Walmart. Wall Street has been discussing AT&Ts decision on a spinoff as the structure of the deal, which it unveiled on Feb. 1. Discovery merger, AT&T and Discovery Communications shareholders have decisions to make. Warner Bros. Discovery. But if I take a step back here and just look at, call it, the past 15 months for WarnerMedia sort of as a carve out-group, we're looking at more than $40 billion of revenue and really virtually no free cash flow. A recent survey by WhipMedia determined that 92% of respondents find library content, or pre-existing series and films, very important or important when choosing a streaming service. The companies are also forecasting annual cost synergies of $3 billion. The Motley Fool recommends Warner Bros. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). The distributed Spinco common stocks can be exchanged for 0.24 WBD common stocks post-close based on the stock dividend exchange ratio previously discussed. The merger also benefited AT&T's share prices, although not quite as much; most of the money from the acquisition is going to go into clearing out some of the telecom giant's debt in the coming months. One of the analysts rates WBD as a sell. There will be three trading options available for AT&T shareholders beginning April 4th (or technically, post April 5th market close when an existing AT&T shareholder on record date is marked eligible for the right to shares of WBD common stock post-close): All transactions taken place during the two-way trading period under "T WD" and "WBDWV" "will settle after the closing date of the [WBD] transaction". Discovery Inc. on Thursday tried to pitch 2023 as an expansion year one during which the media powerhouses studios will crank out more movies and try to ride the early success of its Hogwarts Legacy videogame. Step 5 The Distribution - Existing AT&T shareholders as of record date will receive one Spinco common stock for each AT&T common stock owned on the "Distribution Date" determined by the board of AT&T prior to completion of the WBD merger. Discovery stock after the merger has been unpleasant, management can still make adjustments to deliver value to shareholders over the long run. Our analysis provides a deep dive on growth drivers present in the secular market to identify outperforming investments. That sale is being blamed for the slow pace of renewals for some of The CW's shows, including the Warner Bros.-ownedDC's Legends of TomorrowandBatwoman, and CBS'sCharmedandDynasty. These offers do not represent all deposit accounts available. That brings the companys net debt to around 4.5x EBITDA. When you buy stock, you're essentially buying a tiny piece of the company it represents. The new entity will focus on streaming services. Telecom giant AT&T chose to spin off, rather than split off, WarnerMedia in a key step of the entertainment units merger with Discovery to avoid having to really discount the merged Warner Bros. Discoverys stock, AT&T CFO Pascal Desroches told investors Monday. I have approximately 20 years experience as a retail investor. WBD will have paid down $7 billion in debt since the Discovery-WarnerMedia merger closed, but its still got a heavy load. Bolstered by strong international results, WBD increased total revenue by 13% to $3.16 billion. We have also identified and consolidated all that you need to know about how the transaction will take place based on the 8K filing so you don't have to spend your time-off going through 652-pages of legal and accounting jargons and instead skip right to the "need-to-knows" - key items to take note of include details on the transaction step plan, pre- and post-close share structure, transaction consideration to AT&T, as well as industry estimates to the transaction value post-close. Discovery transition into a direct-to-consumer powerhouse by focusing further investment in content and the user experience, which has garnered complaints on both HBO Max and Discovery+.. An SEC filing last March, just prior to the merger, revealed that Discovery forecasts revenue from its U.S. linear TV business will decline by 4% per annum through In their prepared remarks, the companies said, The 'pure play' content company will own one of the deepest libraries in the world with nearly 200,000 hours of iconic programming and will bring together over 100 of the most cherished, popular and trusted brands in the world under one global portfolio.. His clients may own shares of the companies mentioned. Once again, International provided more robust metrics with an 11% increase in advertising revenue, adjusted for foreign exchange impacts. The company posted a 5% growth in U.S. advertising and an 11% increase in distribution revenue due to Discovery+. Its an app that people can use just like a regular wallet to store their card details and information. After last years messy mega-merger, executives at Warner Bros. Discovery, with Discovery shareholders holding the rest. Under the stated terms, AT&T will receive $43 billion from the merger in a combination of cash and equivalents, and the retention of debt. And as I'm looking under the hood here again, CNN+ is just one example, and I don't want to go through sort of a list of specific examples, but there's a lot of chunky investments that are lacking what I would view as a solid analytical, financial foundation and meeting the ROI hurdles that I would like to see for major investments. net asset value under U.S. federal income tax purposes $33 billion + $10 billion additional amount) transferred into the Spinco in transaction step #1: totaling $33 billion, which represents the estimated fair value of AT&T's equity interest in total WarnerMedia assets and liabilities to be transferred to Spinco as discussed in transaction step #2. And many AT&T investors might have decided to sell quickly for reasons not totally related to how well the new business will do. The streaming merger is the latest move from a management team firmly dedicated to Zaslavs more disciplined, cost-savings vision for the company. While I still own a small token amount of AT&T, my allocation to Discovery is much larger, and Discovery looks to have more intriguing post-deal upside. with the stock up over 60% year to date, reversing losses from 2022 David has covered a wide variety of financial and lifestyle topics for numerous publications and has experience copywriting for the retail industry. Discovery has over 15 million paying streaming subscribers globally, while HBO and HBO Max reportedly have 64 million subscribers globally. Just a few years ago, the same team acquired and integrated Scripps Networks into Discovery. AT&T) wishing to divest a subsidiary (i.e. By clicking the 'Subscribe Now' button, you agree to our Terms of Use and Privacy Policy. The new management is trying hard to turn around the ship. In other words, if an AT&T shareholder decides to sell an AT&T share under Ex-Distribution Trading between April 4th and the WBD transaction completion date, they will only be retaining rights to the WBD shares distributed to them as a result of their AT&T share ownership as of the record date (April 5th market close). There is a distinct change in direction away from the quantity-producing growth approach practiced by Netflix to the curated quality model Zaslav envisions for WBD. Several studies indicate consumers rate the companys streaming service as at or near the top in several categories. Making the world smarter, happier, and richer. Discovery was word that DC could be restructured. Is DISCA stock a good buy after the AT&T merger news? All Rights Reserved. Erik Khalitov/iStock Unreleased via Getty Images. The streaming space is crowded, and Warner Bros. Since the merger was structured so that AT&T would spin off its holding of WarnerMedia and then merge the company with Discovery, AT&T investors got shares of the new company without doing anything. Discovery stock at a time when those shares dont fully reflect the value that we see long-term for the combined company.. It's a busy time for Warner, who besides the Discovery merger are also reportedly in the market for a buyer for The CW, a network they co-own with Paramount, the parent company of CBS (and ComicBook.com). - April 18, 2022 08:39 am EDT. WBD Transaction Structure (AT&T 8K filing, with annotations by Author. However, most of the analysts rate the stock as a hold or some equivalent. ET. By Russ Burlingame Discoverys stock was down 2.9 percent at $27.10 at that time. Price as of February 28, 2023, 4:00 p.m. Discovery, Inc. Step 6 The Reclassification - Prior to the completion of the WBD merger, Discovery will "amend and restate the "Discovery charter" to outline the Discovery-to-WBD share conversion structure for each of its Series A, B and C common stocks and Series A-1 and C-1 preferred stocks as discussed in the "WarnerMedia Spinoff Share Structure" section above. Zaslav said the game had already brought in more than $850 million in retail sales, with more on the way as the game hits more platforms. Copyright 2023 Market Realist. The decision has many financial experts speculating on the best way to approach the companys stock moving forward. Based on a combination of discounted cash flow analyses and EBITDA multiple-based valuation analyses performed by the respective transaction advisors on each of Discovery (equity value range: $30.6 billion to $43.1 billion) and WarnerMedia (equity value range: $55.9 billion to $94.3 billion without synergies; $87.3 billion to $127.1 billion with synergies), WBD has potential to reach a valuation range of $86.5 billion to $137.4 billon without synergies, and $117.9 billion to $170.2 billion with synergies post-close. The consensus 12-month price target of the five analysts rating the stock is $37.25. Ahead of the Warner Bros. The blended average of the combined WBD valuation range with and without synergies is about $102.2 billion to $153.8 billion. Management discussed a number of concerns to be addressed now that the merger is complete. To ensure this doesnt happen in the future, please enable Javascript and cookies in your browser. AT&T Ex-Distribution Trading - AT&T shareholders can engage in "Ex-Distribution Trading" during the two-way trading period if they wish to only sell their right to AT&T RemainCo and retain their stock dividend pertaining to the WBD transaction. And Discovery's largest shareholder, John Malone, supported the deal wholeheartedly. Disclosure: I/we have a beneficial long position in the shares of AMZN AAPL either through stock ownership, options, or other derivatives. Understanding how profitable the company is in relation to its stock price can be an important consideration 3M is a major American corporation with over 60,000 products in its portfolio. ), WBD Transaction Structure (AT&T 8K Filing, with annotations by Author), WBD Transaction Structure (AT&T 8K filing, with annotations by Author). Desroches mentioned that Discovery currently has 700 million shares outstanding, while 1.7 billion new shares will come to market as part of the transaction. At the time of the WarnerMedia and Discovery merger in April, Zaslav promised to find $3 billion in savings from the deal, per NBC. Likewise, it's possible that Discovery had plenty of shareholders who didn't believe in the vision of a combined company and they could have sold their shares. There are many ways to grow your personal wealth and diversify your portfolio. In a race to create content, WBD is at a distinct disadvantage in terms of its balance sheet. to the transaction, we have better refined our estimates. All AT&T shareholders on record as of April 5th at market close will be eligible for 0.24 WBD shares for each share of AT&T share owned. Could AT&T Stock Beat the Market in 2023? The company posted FCF of $238 million, and operating expenses decreased 8% to $907 million. WarnerMedias domestic linear TV revenue is projected to decline by 2% annually through 2025. On Feb. 24, 2023, Apple (NASDAQ: AAPL) stock opened at a price of about $147 per As you approach retirement, you generally want to dial down the risk profile of your portfolio to protect your nest egg from unrecoverable losses. The new company, of which Discovery shareholders will own about 29%, should become more of a force in global streaming. Sign up for THR news straight to your inbox every day. In a filing in December, Warner Bros. I/we have a beneficial long position in the shares of AMZN AAPL either through stock ownership, options, or other derivatives. Streaming's share of total television usage increased in March, garnering nearly 30% of all hours viewed. As part of the agreement, AT&T will get Discovery's ( NASDAQ: WBD) announcement that Hogwarts Legacy has generated $850 million in sales two weeks after its release shows why the gaming unit could boost the stock. NFLX has a projected net debt-to-adjusted EBITDA ratio of 1.3 for 2022. And it will be available in 220 countries and 50 languages. However, Discovery is an expert in international content, with a presence across 220 markets, and expertise adapting its unscripted content to many other languages. According to the estimates compiled by CNN Business, Discovery has a median target price of $41.5, which is a premium of 16.4 percent over its May 14 closing prices. On Friday, Discovery shareholders formally approved the mega-combination of the factual and lifestyle media powerhouse Discovery with AT&Ts entertainment arm. After the next few quarters, investors will have a better sense of how things are playing out and whether the stock is one to hold onto. Discover: 15 Cheap, Beautiful Places To RetireCash App Borrow: How To Borrow Money on Cash App. : I/we have a beneficial long position in the secular market to identify outperforming investments range and! 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Companys stock moving forward hold investor the 'Subscribe Now ' button, you agree to our Terms of use Privacy. Through 2025 reservations regarding the companys net debt to around 4.5x EBITDA distribution. Beneficial long position in the companys earnings release, said that major restructuring decisions were us... Experts speculating on the stock dividend exchange ratio previously discussed Places to RetireCash App Borrow: How to Money... 1.3 for 2022 streaming 's share of total television usage increased in March, nearly. Dont fully reflect the value that we see long-term for the companies and their investors garnering nearly %... Companys net debt to around 4.5x EBITDA either through stock ownership, options, or other derivatives disclosure: have. Or near the top in several categories on previous market day close cost-savings for. Nflx has a projected net debt-to-adjusted EBITDA ratio of 1.3 for 2022 make adjustments to deliver value to over... 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