Warner Bros. Discovery (NASDAQ:WBD) can’t catch a break lately, with shares recently plunging to $8.70. After such a beating, many may wonder if WBD is finally a buyable deep-value play. Undoubtedly, the media scene has been under quite some pressure in the last several years. And though Warner Bros.’s merger with Discovery was supposed to help ease the industry pains, I think it’s safe to say that there hasn’t been much in the way of relief.
Content remains king when it comes to thriving in the media and streaming scene. We’ve heard the saying before, and we’ll continue to hear it as streaming rivals duke it out for a limited number of users. But with a constrained budget and hefty debt load, it seems that WBD has its hands tied. With a modest multiple and a seasoned CEO, David Zaslav, running the show, I’m staying bullish on WBD.
Though WBD’s Max streaming service has plenty of must-watch flicks with the Game of Thrones spin-off House of Dragon, alongside a multitude of other robust franchises, it’s continued to be a struggle for the firm to really hit the ground running, given the costs of content production. In today’s high-rate world, the stakes are high when it comes to big-budget films or a hit TV series.
WBD Stock Seems to Be Getting Cheaper By the Day
There are potential “turnaround” levers that Warner Bros. Discovery can pull as it does its best to turn the tides. At $8.70, the stock stands out as more of a deep-value play than a value trap. Though bottom-fishing will continue to be tricky, it’s becoming tough to sit on the sidelines now that shares are going for a mere 0.5 times price-to-sales (P/S) and 0.45 times price-to-book (P/B).
Is there a lot of baggage that accompanies the stock’s dirt-cheap price tag? There most definitely is. However, you’re getting so many high-quality franchises from the firm. And if it’s content that will prevail, one has to think Warner Bros. Discovery is a deep-value bet that could prove the falling-knife catchers right in due time.
Though untimely, it seems like sentiment couldn’t be worse for the firm. With The Big Short‘s Dr. Michael Burry’s Scion Capital recently getting into the stock, those with a nose for deeper value should be keeping a close watch on the name after its latest descent.
Warner Bros. Discovery-Paramount Merger Isn’t Happening. What Next?
There was recent chatter that the company could be in the running to merge again with the struggling media firm Paramount (NASDAQ:PARA). Such merger talks have since fallen through, and it’s becoming clear that ailing media firms can’t solve their problems via consolidation alone.
Further, Warner Bros. Discovery has more than enough debt sitting on the balance sheet to weigh its content-creation pipeline down. Though the company has been trimming away at the debt load lately, it’s clear that the burden of the debt could continue to take away from the incredible content that the firm could be making for its streaming platform.
As of the end of the latest quarter, the firm had around $42 billion worth of long-term debt. That’s way too much for a company with a $21.2 billion market cap. Fortunately, I think Warner Bros. Discovery has the means to get back on the right track, especially if it can tap into AI tools over the coming years.
AI: A Wild Card That Could Help WBD Walk the Tightrope
With the rise of profound generative artificial intelligence (AI) technologies, content creation could become a heck of a lot cheaper in the future. That is, if big media studios, like Warner Bros. Discovery, don’t face considerable backlash for incorporating the use of AI. In any case, such tools could help the firm stay on the tightrope as it seeks to balance new content with debt reduction and cost cuts.
With the field of AI moving so fast, I do see areas of production (perhaps editing) that could benefit from a speed and savings boost. Either way, Warner Bros. Discovery faces a tough road to recovery as it seeks to keep pushing its Max streaming platform toward profitability while tapping into theatrical releases again.
Is WBD Stock a Buy, According to Analysts?
On TipRanks, WBD stock comes in as a Moderate Buy. Out of 17 analyst ratings, there are nine Buys, seven Holds, and one Sell recommendation. The average WBD stock price targetis $13.61, implying upside potential of 56.7%. Analyst price targets range from a low of $9.00 per share to a high of $20.00 per share.
The Bottom Line on WBD Stock
Warner Bros. Discovery’s cost cuts and project cancellations have been discouraging for investors. However, as the firm reduces debt while improving Max’s economics, I think the firm has a path to recovery. In due time, headwinds stand to fade, and I expect that they may look to predictive AI technology for a bit of help with which projects it should undertake, given its limited budget.
All things considered, I view WBD stock as a great, albeit untimely, value play for deep-value investors (like Michael Burry).
Disclosure
