Restructuring Progress
Warner Bros. Discovery, Inc. (NASDAQ:WBD) is now at the latter stages of its extensive restructuring since the merger closed in April 2022 and has made significant progress on many of its initial financial and strategic objectives.
Revamping its global organization and establishing enhanced financial controls to better manage the integration of its diverse global businesses were swift actions taken by WBD post-merger.
The company has been laser-focused on increasing its synergies, EBITDA, and Free Cash Flow with the objective of reducing debt incurred as part of the merger transaction.
Despite its many financial and business accomplishments, WBD continues to be the most undervalued diversified global media company, in my opinion, mainly due to significant GAAP losses and negative EPS reported since the merger.
I continue to believe that there is significant near- and long-term upside in WBD due to the company’s strong fundamentals and financial performance.
Third Quarter Financial Results
WBD’s third quarter financial results included its highest ever quarterly Adjusted EBITDA of $3.0 billion, its second highest quarterly Free Cash Flow of $2.1 billion, and debt pay-downs of $2.4 billion.
CEO David Zaslav and CFO Gunnar Wiedenfels made a strong case for the company’s results and prospects, but the market reacted very poorly when Wiedenfels cautioned about future uncertainties in the linear advertising market.
Describing the target leverage for a specific date as a multiple of Adjusted EBITDA becomes circular with multiple unknowns. It would be much more straightforward for WBD to simply say that in 2024 it intends to reduce its debt by another $4 billion to $6 billion.
Financial Presentation
To date, WBD has focused its earnings presentations on Adjusted EBITDA and Free Cash Flow. However, I believe these are largely underappreciated by the market in valuing WBD’s equity and are certainly ignored by the media which has a difficult time putting EBITDA and FCF in context.
Many investors and financial media reporters prefer to focus on earnings and P/E ratios as a way to gauge a company’s performance over time and to compare companies.
