1. Warner Bros Discovery Inc. (NASDAQ:WBD)
Share Price as of October 16: $7.60
Number of Hedge Fund Holders: 48
Warner Bros Discovery Inc. (NASDAQ:WBD) is an American multinational mass media and entertainment conglomerate that owns and operates a vast portfolio of entertainment brands, including Warner Bros., HBO, Discovery Channel, and CNN, among others. It produces and distributes a wide range of content, including movies, TV shows, documentaries, news, and sports.
The company’s revenue comes from network businesses (49%), movie studios (26%), and D2C products (25%). The firm teamed up with Charter Communications to offer Discovery Max and Discovery+ to Charter customers free of charge. Warner Bros. Discovery’s shares jumped by 7% on the announcement. The company’s shares tanked by 10% in August after advertising uncertainty prompted a massive $9.1 billion impairment of TV assets.
Revenue for the second quarter of 2024 was $9.71 billion, although recording a year-over-year decline of 6.23%. There was a 6% increase in subscriber-related revenues, driven by advertising revenues. Content revenue declined 70% due to the timing of licensing deals. Domestic net ad trends remained similar to recent quarters, with growth in retail Max space offset by linear wholesale headwinds. Churn increased after March Madness and the conclusion of the NBA and NHL seasons. Streaming ad revenues doubled year-over-year on continued strong demand for Max inventory and the addition of sports content. Network distribution revenues decreased by 8%.
Recently, Warner Bros Discovery Inc. (NASDAQ:WBD) deployed a new, AI-powered captioning solution built using Google Cloud AI. This solution utilizes Google Cloud’s Vertex AI platform to dramatically improve captioning efficiency, cutting production time and costs. This data-driven approach enables the company to continuously refine and train the caption AI workflow, further reducing errors and striving to deliver consistently precise captions.
The company’s diversified revenue streams, coupled with its ongoing efforts to enhance operations through AI and strategic partnerships, position the company for long-term growth and success in the competitive media and entertainment industry.
Bonhoeffer Capital Management stated the following regarding Warner Bros. Discovery, Inc. (NASDAQ:WBD) in its first quarter 2024 investor letter:
In remembrance of Charlie Munger, I listened to and read his investment speeches in Poor Charlie’s Almanac. His speech to the University of Southern California business school specifically dealt with the application of worldly wisdom to investment management and business. There were five ideas presented by Munger in that speech which are particularly relevant in the Bonhoeffer portfolio. First, over the long term, it’s hard for a stock to earn more than the underlying business earns. As an illustration of this principle, we examined two firms, Old Dominion Freight Line (ODFL) and Warner Bros. Discovery, Inc. (NASDAQ:WBD).
WBD is an example of a value stock whose value has been impaired by a declining intrinsic value over time. Historically, WBD has been consolidating media content and distribution firms. However, the media content and distribution industry has been fragmenting over the past 20 years, with many new competitors and lower barriers to entry. Based upon Morningstar’s estimates, WBD is almost always undervalued, but stock price declined by 13.4% per year less than intrinsic value which declined by 5% per year, which is still a disaster compared to the index which increased by 12.7% per year. The average RoE was 7.2% and was declining through the period and ended negative. The chart below shows both the stock and Morningstar’s estimate of its intrinsic value over time.
These trends of growth and their effects on returns are reflected in the new investments we have invested in and those firms we have sold recently. We have sold most of our telecom and media firms (which have had flat to declining intrinsic values over time). These firms have been replaced by consolidating capital light distribution firms and specialized financial services firms (which have had increased intrinsic value over time) one of which is described below.
While we acknowledge the growth potential of Warner Bros Discovery Inc. (NASDAQ:WBD), our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than WBD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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