We came across a bullish thesis on Warner Bros. Discovery, Inc. (WBD) on Substack by Kostadin Ristovski, ACCA. In this article, we will summarize the bulls’ thesis on WBD. Warner Bros. Discovery, Inc. (WBD)’s share was trading at $11.09 as of Feb 24th.
A packed theater of moviegoers watching a blockbuster film produced by the entertainment company.
Warner Bros. Discovery (WBD) presents a complex yet intriguing investment case, shaped by its 2022 merger with WarnerMedia and the financial challenges that followed. While structured as a merger, Discovery effectively acquired WarnerMedia, resulting in a highly leveraged balance sheet and a business reliant on both legacy linear television and a rapidly evolving streaming ecosystem. Historically, WBD’s portfolio has revolved around its cable networks, including CNN, TNT, and the Discovery Channel, but its transformation is now centered on streaming through HBO Max and Discovery+. In late 2024, the company announced a restructuring into two divisions: Global Linear Networks and Streaming & Studios, signaling a shift in focus toward the latter, which holds the greatest long-term value. Speculation is growing that WBD could divest its linear TV segment, following the broader industry trend of shedding legacy assets to focus on high-growth opportunities. Meanwhile, WBD’s vast intellectual property (IP) portfolio, featuring franchises like Batman, Harry Potter, and major gaming titles such as Hogwarts Legacy, underscores its potential for content-driven expansion.
Financially, WBD faces a heavy burden, with nearly $40 billion in outstanding debt and an accounting structure skewed by $45 billion in intangible assets from the WarnerMedia acquisition. While these intangibles distort profitability metrics, they do not require cash reinvestment, meaning the company’s true earnings power is stronger than it appears on paper. WBD generates around $5 billion in annual free cash flow, most of which has been dedicated to debt reduction. Since the merger, the company has cut net debt by 30%, yet its leverage remains a key investor concern, particularly given an average debt duration of 13.5 years at a 4.7% interest rate. The company’s ability to manage this debt load while investing in its content pipeline and streaming platform will be critical to unlocking value.
Despite these challenges, WBD’s strategic transformation holds substantial upside potential. If the linear TV business is sold, the proceeds could accelerate debt repayment and allow the company to focus entirely on streaming and content creation. Unlike a winner-takes-all scenario, the streaming industry has room for multiple players, and WBD’s extensive content library positions it as a formidable competitor alongside Netflix and Disney+. While concerns over debt persist, the company’s improving cash flow and restructuring efforts could drive a significant rerating of its stock. The market’s current valuation appears overly pessimistic, fixated on past missteps rather than future potential.
A discounted cash flow (DCF) analysis suggests WBD is worth around $35 billion ($14/share), slightly above its current market cap of $27 billion ($11/share). The valuation gap reflects investor uncertainty, which could shift if WBD executes on debt reduction, subscriber growth, and monetization of its IP portfolio. A best-case scenario involves steady streaming expansion, stabilization of linear TV ad revenue, debt reduction below 2.5x EBITDA, and successful new content and gaming initiatives, potentially driving the stock toward $20/share. Conversely, risks remain, including weak content performance, a prolonged decline in linear TV, and unfavorable refinancing conditions, which could push the stock as low as $3/share. Ultimately, WBD’s investment appeal hinges on management’s ability to navigate these complexities and unlock the value embedded within its assets.
Warner Bros. Discovery, Inc. (WBD) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 64 hedge fund portfolios held WBD at the end of the third quarter which was 49 in the previous quarter. While we acknowledge the risk and potential of WBD as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher 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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Disclosure: None. This article was originally published at Insider Monkey.