We recently compiled a list of the 10 Best Communication and Media Stocks To Buy According to Hedge Funds. In this article, we are going to take a look at where Warner Bros. Discovery, Inc. (NASDAQ:WBD) stands against the other communication and media stocks.
The global telecommunications industry faces significant growth challenges amidst increasing demand for its essential services. Driven primarily by video traffic, global data consumption across telecom networks is expected to nearly triple by 2027. However, providers are experiencing limited pricing power in commoditized connectivity and data services, with internet access revenues projected to grow modestly at a 4% compound annual growth rate (CAGR) to reach $921.6 billion by 2027. Meanwhile, telecommunications companies (telcos) face substantial costs as they invest heavily in infrastructure to support 5G and other emerging technologies, with an estimated $342.1 billion investment forecasted for 2027 alone. These insights are highlighted in PwC’s inaugural Global Telecom Outlook, which underscores the strategic imperatives for telcos to sustain growth in a competitive landscape. Alongside traditional cost-cutting and optimization efforts, telcos are advised to explore growth opportunities such as IoT solutions, private 5G networks for businesses, fixed wireless broadband for households, and tailored digital infrastructure services for sectors like entertainment, healthcare, manufacturing, and mobility. Embracing these growth areas requires telcos to collaborate effectively within broader ecosystems that are reshaping the industry.
In the business-to-consumer (B2C) sector, telecommunications companies (telcos) are experiencing heightened demand driven by evolving user preferences, particularly as new devices with increasingly data-intensive requirements emerge, largely fueled by video content. By 2027, of the projected 9.7 million petabytes (PB) of data consumption, nearly 7.7 million PB (79%) will be attributed to digitized video content, surpassing all other categories combined. Over the same period, data consumption from traditional communications has grown 104% from 2018 to 2022 due in part to pandemic-related factors, but is expected to increase only 26.8% through 2027. Games represent another significant growth area, with data consumption associated with gaming projected to grow at a 21% compound annual growth rate (CAGR) from 2022 to 2027, driven by the shift towards online and cloud gaming. Virtual reality (VR), fueled by the expansion of the metaverse, is also on the rise, with an anticipated 43% CAGR in VR data consumption over the next five years, accounting for 5% of total data consumption by 2027.
Despite technological advancements and increasing competition, the price of data is declining, impacting internet access revenues which are expected to grow at a modest 4% CAGR to reach $921.6 billion by 2027 from $757.7 billion in 2022, closely tracking global GDP growth. Cellular data is forecasted to be the fastest-growing category, with a 27% CAGR from 2022 to 2027, driven by significant variations in data consumption patterns across regions. In North America, cellular data is projected to comprise 6% of all data traffic, compared to 30% in Asia, particularly influenced by developments in India where the rollout of 5G is expected to catalyze service innovation and subscriber growth, potentially reaching 300 million to 350 million 5G subscribers by 2026. Telecom giants such as Reliance Jio and Bharti Airtel are poised to capitalize on this opportunity by fostering a robust gaming ecosystem and expanding into sectors like healthcare.
Our Methodology
We leveraged Insider Monkey’s comprehensive database of 920 prominent hedge funds to identify the top 10 media and communications stocks with the highest level of hedge fund investment as of Q1 2024. These stocks are listed in order of increasing hedge fund ownership, providing insight into the most popular communication and media stocks among elite investors.
A movie theater auditorium filled with an audience enjoying a blockbuster film.
Warner Bros. Discovery, Inc. (NASDAQ:WBD)
Number of Hedge Fund Holders: 55
On June 18, Warner Bros. Discovery announced the appointment of Robert Gibbs, former White House press secretary for President Barack Obama, as its new communications chief. In its latest quarterly earnings announcement on May 9, Warner Bros. Discovery, Inc. (NASDAQ:WBD) reported a normalized earnings per share of -$0.24, missing expectations by $0.07. The company recorded revenue of $9.96 billion, which was $265.78 million below forecasts. On June 25, Goldman Sachs began coverage of Warner Bros. Discovery, assigning a Neutral rating and setting a price target of $8.50. In the first quarter of 2024, there were 55 hedge funds holding positions in Warner Bros. Discovery, Inc. (NASDAQ:WBD), as compared to 56 in the previous quarter according to Insider Monkey’s database. The total value of these holdings is approximately $0.84 billion. Natixis Global Asset Management’s Harris Associates held the largest stake among these hedge funds during this period.
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.
Overall WBD ranks 9th on our list of the best communication and media stocks to buy. You can visit 10 Best Communication and Media Stocks To Buy According to Hedge Funds to see the other communication and media stocks that are on hedge funds’ radar. While we acknowledge the potential of WBD as an investment, our conviction lies in the belief that 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 is originally published at Insider Monkey.