Warner Bros. Discovery Q2 Financials: Revenues/Streaming Subscribers Down, Free Cash Flow Up

Warner Bros. Discovery shared its Q2 financial results today, reporting a mixed bag that saw share prices drop lower than expected and a dip in streaming subscriber numbers but better-than-expected free cash flow.

The bottom line: The company posted a net loss of $1.24 billion, or 51 cents per share, which was worse than analysts were predicting ahead of today’s report. Still, that’s an improvement over last year’s Q2 losses of $3.4B, or $1.50 a share.

What hurt WBD the most in Q2? The most public Warner Bros. Discovery flop was The Flash, which only managed to make $268 million at the box office despite a huge budget and incredible marketing push. The company also continued struggling to sell ads as its linear tv audiences shrank. The company’s studio unit, responsible for theatrical features, reported revenue of $2.58 billion, missing analysts’ estimates of $3.21 billion. Barbie’s incredible box office success won’t appear until the company’s third-quarter results.

Streaming: Warner Bros. Discovery lost 1.8 million streaming subscribers during the quarter, coinciding with the merger of HBO Max and Discovery+. The combined subscriber count of HBO, Max, and Discovery+ worldwide now sits at 95.8 million. A drop in subscribers was always expected to accompany the merger, as around 4 million customers were subscribing to both Discovery+ and HBO Max and were likely to cancel one or the other after being migrated to  Max. That said, WBD’s direct-to-consumer unit posted revenue of $2.73 billion, beating analysts’ estimates of $2.48 billion.

What about the company’s debt? CEO David Zaslav reiterated that one of his primary objectives remains the reduction of an incredible debt that existed when Discovery completed its acquisition of Warnermedia. Last quarter, WBD managed to repay $1.6B of the remaining deficit, leaving the company $47.8B in the hole.

Is there a silver lining? Zaslav emphasized the importance of generating free cash flow, which lead to the biggest positive takeaway from today’s results. According to the CEO, the company now has an overall free cash flow of $1.72 billion, compared to just $789 million in the same quarter last year.

What are they saying? In a letter to shareholders, Zaslav said:

The important work we are doing to transform our businesses for the future continues to drive our strong financial performance as demonstrated by meaningful improvements to our balance sheet and our now increased synergy target of more than $5 billion. This quarter alone we reported over $1.7 billion in free cash flow, and we remain bullish with respect to our delevering story and expect to be comfortably below 4.0x levered by the end of the year and at our target of 2.5-3.0x gross leverage by the close of 2024. All of which positions us well to lean into growth opportunities that will ultimately drive shareholder value, to include our direct-to-consumer business, which, in the wake of the successful launch of Max in the U.S., is tracking well ahead of our financial projections, having generated positive EBITDA in the first half of the year.