Warner Bros. Discovery Earnings: Weak Ad Revenue Overshadows First Adjusted EBITDA Profits at DTC

Warner Bros. Discovery continues to suffer from weak advertising results as the networks segment posted another dour performance despite a strong sports slate. Cost cutting helped the direct-to-consumer segment post its first adjusted EBITDA gain, albeit with a slight revenue decline and weak subscriber additions. Management now expects the business to generate positive adjusted EBITDA for 2023, a year ahead of schedule. This may be a positive sign to some investors, but we believe that focusing on DTC profitability without topline and subscriber growth is not a sustainable strategy because of the need to replace linear television revenues longer term. We are maintaining our $30 fair value estimate.