Shares of Warner Bros. Discovery (WBD) went live earlier this month, and early signs show it’s a screaming value right out of the gate at around $24 per share. The newly merged firm is one of the biggest players in the media space, with its nearly $60 billion market cap.
With the ongoing video-streaming wars, there are reasons to believe that the new media kingpin can make a bigger dent. Undoubtedly, having Discovery join forces with Warner Bros. will allow their respective streaming services to stack up better against Walt Disney’s (DIS) and Netflix (NFLX).
HBO Max and Discovery+ are the firm’s bread and butter, as consumers continue to gravitate away from cable television and towards over-the-top streaming platforms.
With Warner Bros. parting ways with telecom behemoth AT&T (T), management can now narrow its focus and enhance its direct-to-consumer offering to better compete against the growing number of rivals in the streaming space. I am bullish on WBD stock out of the gate.
Warner Bros. Discovery: Sights Set on Streaming
It isn’t getting any easier to compete in video streaming, with all the rivals emerging from different corners. Heck, even large big tech companies are getting in on the action, with the likes of Apple (AAPL) bringing home the Oscar for best picture with its Apple TV+ exclusive film CODA.
With the growing number of options in streaming, I’d argue that Netflix’s days at the top could be numbered. With a potential recession on the horizon, we could witness consumers go beyond “cutting the cord” to “cutting away at the growing number of video-streaming subscriptions.”
That said, content will always be king. Firms with content will be in an excellent spot to take subscribers away from streaming services that experience those dreaded content “droughts.”
Warner Bros. Discovery is a standout player with its massive content library. Now that management has its talents focused on content rather than telecom initiatives, I think the firm could have some very sticky new TV hits up its sleeves.
Warner Bros. Discovery ‘Has the Goods’ to Compete
It’s not just older content that makes Warner Bros. such a force to be reckoned with. The company has some compelling franchises under its umbrella, including DC Comics, HBO, and Adult Swim.
With a focused management team, I’d look for the firm to double down on hit TV series content across such franchises. Undoubtedly, Warner Bros. is the Batman to Disney’s Spiderman.
With Discovery’s assets aboard, the firm now has an answer to Disney’s National Geographic. Further, many hit cable TV offerings like TLC, Food Network, and Animal Planet could draw in more users from cable TV.
With an exceptional steward in CEO David Zaslav running the show, I think it’ll be tough to stop the firm as it catches up to its media rivals.
Where is Zaslav taking the newly merged company? He wants Warner Bros. Discovery to become a global powerhouse that can challenge the likes of Netflix and Disney.
“We have the goods. We have the chance to be the greatest media company,” said Zaslav in Warner Bros. Discovery’s first-ever town hall.
Though he may sound over-optimistic, I do not doubt the man’s talents. If the content and value are there, the consumers will come.
Warner Bros. Discovery Stock: What about Valuation?
Warner Bros. Discovery stock has been met with muted results. Amid market volatility, shares of WBD have not been too eventful. Still, I think there’s real value to be had, even as markets contemplate the possibility of a recession in 2023.
The stock currently trades at 16.3 times trailing earnings, around seven times cash flow, and five times sales. That’s cheap. Clearly, investors are taking Zaslav’s bullish commentary with a grain of salt.
With such a mild valuation, investors may have a lot to gain by giving Zaslav the benefit of the doubt. The content arsenal is powerful, perhaps powerful enough to make a run to knock Netflix off its podium.
Wall Street’s Take
According to TipRanks, WBD stock comes in as a Strong Buy. Out of five analyst ratings, there are four Buy recommendations and one Hold recommendation.
The average Warner Bros. Discovery price target is $43.25, implying an upside of 81.7%. Analyst price targets range from a low of $40 per share to a high of $48 per share.
Bottom Line on WBD Stock
Warner Bros. Discovery landed on the Nasdaq with a rather muted response. If the company can execute, it can evolve to become the next big streaming beast. That’s a big “if” that likely has many sticking to the sidelines for now.
With such a low bar set ahead of the firm, it should come as no surprise to hear the incredibly bullish calls by Wall Street analysts. They’re right to be so bullish on the market newcomer.
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