Warner Bros. Discovery Stock Plunged. Here’s why.

What happened

Shares of Warner Bros. Discovery (WBD -16.53%) fell 16.5% on Friday, after the media conglomerate reined in investors’ growth expectations.

So what

Warner Bros. Discovery was formed when AT&T spun off its WarnerMedia assets and merged them with Discovery. The combination joined popular TV networks like TBS, TNT, and CNN with streaming services HBO Max and Discovery+. The goal was to consolidate the company’s power in the broadcast and cable industries and bolster its competitive position within the streaming arena.

To do so, CEO David Zaslav made the controversial decision to scuttle Warner Bros. Discovery’s fledgling streaming news service, CNN+, in April. He’s also planning to combine the company’s HBO Max and Discovery+ streaming services next year.

Yet the transition is unlikely to be smooth. On Thursday, Warner Bros. Discovery reported second-quarter revenue of $9.8 billion. That was well below Wall Street’s expectations of $11.8 billion. It also generated a net loss of $3.4 billion, driven in part by more than $1 billion of restructuring and other charges.

Now what

Warner Bros. Discovery now expects its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to increase from $9 billion to $9.5 billion in fiscal 2022 to $12 billion in 2023. The company’s new adjusted EBITDA goal is $2 billion less than its previous forecast of $14 billion.

Still, management believes Warner Bros. Discovery could see its global streaming subscribers grow to 130 million by 2025, up from roughly 92 million at the end of the second quarter. However, judging by the stock’s performance on Friday, investors aren’t confident that the company can achieve its growth targets.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool recommends Warner Bros. Discovery, Inc. The Motley Fool has a disclosure policy.

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