Why stock Warner Bros. Discovery dropped today

Actions of The discovery of Warner Bros (WBD -8.62%) hit new lows today after the entertainment giant posted another disappointing second-quarter earnings report.

As a result, the stock was down 8.9% at 12:34 ET.

Image source: Getty Images.

Warner Bros. it’s still broken

Warner Bros. Discovery has been struggling since the business was formed through a merger in 2022. It is saddled with billions in debt and faces headwinds from the decline of linear media.

Those challenges were on display again in the second-quarter earnings report, as revenue fell 6% to $9.71 billion, well below the $10.07 billion consensus.

Revenue fell in all three business segments (studios, networks and direct-to-consumer), and domestic Max subscribers were down 300,000 from the first quarter, although it added 3.9 million new subscribers in international markets.

The company took a $9.1 billion goodwill impairment charge on the value of its network business and a $2.1 billion amortization charge on intangible assets. Challenges in the US linear advertising market and uncertainty surrounding the renewal of sports rights, including the NBA, contributed to these charges.

In closing, WBD reported a 15% drop in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) to $1.8 billion. Excluding the impairment, WBD reported an operating loss of $813 million.

CEO David Zaslav noted “industry headwinds” and said the company is focused on growing Max subscriptions. He expected the direct-to-consumer segment to be profitable by the second half of next year.

Can Warner Bros. be saved?

The company did not provide detailed guidance, but said it was still targeting $1 billion in direct-to-consumer EBITDA.

However, that alone won’t save the company, and we’re likely to see more asset writedowns as the traditional cable business shrinks, especially after TNT’s loss of the NBA.

Warner Bros. Discovery probably has the best collection of IP of any entertainment company out there Disneyencompassing everything from Looney Toons to the HBO catalog, but under David Zaslav, it focused more on cutting costs than building a business.

This strategy clearly did not pay off. While the stock might seem cheap for a business with its potential, it’s best avoided until management takes a turn in a different direction.