On Thursday, Warner Bros. Discovery (NASDAQ:WBD) received a reiterated Peer Perform rating from Wolfe Research, with a focus on the company's announcement of a corporate restructuring. The restructuring is aimed at enhancing strategic flexibility and potentially unlocking additional shareholder value. The reorganization will see the creation of two distinct operating divisions within Warner Bros. Discovery: "Global Linear Networks" and "Streaming & Studios."
The "Global Linear Networks" division will concentrate on maximizing EBITDA and free cash flow, while the "Streaming & Studios" division will be tasked with driving growth and ensuring strong returns on invested capital. The company plans to have the new structure in place by mid-2025 and anticipates evolving its Board to effectively execute its strategy.
This move is seen as a possible precursor to a larger transaction or corporate action. Earlier in the year, Warner Bros. had shown interest in the for-sale assets of Paramount Global, and with the industry's need for consolidation, the new administration may offer a change of pace. The restructuring may be a prelude to a potential merger or asset sale, with Warner's linear assets and Comcast (NASDAQ:CMCSA)'s cable network spin-off being a combination that could provide significant benefits.
The "Streaming & Studios" division, which includes the HBO brand and a vast intellectual property portfolio from the Warner Bros. Studio, could attract interest from big tech companies and private equity firms. Although Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN) have led in streaming through organic investment, Warner's coveted franchises could still draw attention.
The rationale behind the corporate structure change is to possibly separate the assets in the future while maintaining commercial agreements that ensure wholesale access to direct-to-consumer services. This could allow for higher revenue per subscriber and improve the scale of direct-to-consumer offerings.
Additionally, the consolidation of direct-to-consumer and studios within the new structure could lead to more in-house leveraging of content previously sold to third parties, particularly in international markets that Warner Bros. plans to expand into by 2026. Based on InvestingPro's Fair Value analysis, WBD appears slightly undervalued at current levels, with additional insights and detailed valuation metrics available in the comprehensive Pro Research Report, which covers this and 1,400+ other top US stocks.
In other recent news, Warner Brothers Discovery has been the subject of several significant developments. The company has undergone a strategic reorganization into two distinct divisions: Global Linear Networks and Streaming & Studios, a move supported by BofA Securities. This structural change is seen as a positive step towards unlocking the unrecognized value of the company's assets, potentially leading to a spin-off of the streaming and studio assets.
Warner Brothers Discovery's financial outlook has also seen adjustments. Guggenheim maintained a positive outlook on the company, increasing the stock's price target while keeping a Buy rating. This adjustment followed a finalized multi-year, multi-market distribution agreement with Comcast, leading to higher Networks Distribution revenue forecasts and raised Direct-to-Consumer subscriber estimates.
In addition, the company's advertising revenue estimates were increased, and an adjusted EBITDA forecast was raised. BofA Securities also sustained its optimistic stance on Warner Brothers Discovery, maintaining a Buy rating. The firm highlighted the strength of the company's assets and the potential for future strategic maneuvers.
Finally, Warner Brothers Discovery has launched two new advertising solutions, Shop with Max and Moments, powered by KERV.ai's technology. These solutions aim to enhance the streaming experience by integrating shoppable content.
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