Where will Warner Bros. Discovery’s stock be in 5 years?

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Last year was challenging A Warner Bros. invention (WBD 0.32%). The entertainment giant was formed by the merger of WarnerMedia and Discovery in April 2021 and its share price has underperformed. S&P 500 Since then. But Warner Bros. As Discovery’s leadership plans to strengthen its position in the streaming industry, where could its stock go in the next five years?

Cost cutting comes at a cost

Warner Bros. Discovery has spent much of the past year cutting costs as part of an effort to save at least $3 billion. Under the stewardship of CEO David Zaslav, it cut jobs, closed projects and pulled TV shows such as Westworld And films like the witch from streaming

Fortunately for stakeholders (and fans of Warner Bros. Discovery content), the company recently hinted at another change. “[W]I’m done with that chapter,” Chief Financial Officer Gunnar Weidenfels said during a recent Citibank conference.”[2023] It will be a year of relaunching and building.

Integrated streaming product

A major part of Warner Bros. Discovery’s business that will get the reboot treatment this year is its streaming arm. The company currently operates HBO Max and Discovery+ as separate services, but this spring, that will change as the two will be rolled into a unified service.

Warner Bros. For Discovery, combining its twin streaming products makes sense — the company can simplify and streamline its back-end processes and provide customers with a single point of access to its content catalog. And when it comes to new platforms, Warner Bros. Discovery says it intends to continue offering both ad-free and ad-supported tiers.

Plan to outperform the competition

For all its efforts to simplify its streaming offerings, Warner Bros. Discovery has a long way to go if it wants to compete with the industry giants. Netflix (Nflx -0.09%) And Walt Disney (dis 0.81%) On raw subscriber count. Warner Bros. Discovery has about 95 million streaming subscribers across HBO Max and Discovery+, compared to just over 223 million for Netflix, and Walt Disney counts a combined 225 million across Disney+, Hulu and ESPN+. And with both Netflix and Disney+ introducing ad-supported tiers last year, the premium streaming space is sure to be competitive for some time yet.

But Warner Bros. Discovery has another strategy – a free ad-supported TV (FAST) service

During Warner Bros. Discovery’s fiscal 2022 third-quarter earnings call, Zaslav confirmed that the company will launch a new FAST offering sometime this year. As the executive noted, Warner Bros. Discovery has Hollywood’s “largest film and TV library” and believes it will be able to use that catalog to build a FAST platform without spending too much on content acquisition.

From an investor’s perspective, the idea that Warner Bros. Discovery could create an entirely new service out of the movies and TV shows it already owns is certainly compelling. And with some industry experts considering the FAST industry could be worth $4.1 billion in 2023 — up from $2.1 billion in 2021 — it looks like Warner Bros. Discovery could be headed in the right direction.

A difficult environment for ad-supported content

As promising as Warner Bros.’ move into Discovery’s fast lane is, it still faces some challenges — not the least of which is the macroeconomic environment.

The advertising industry has been sluggish since mid-2022, and with many economists projecting a U.S. recession in 2023, this year looks like it could be pretty sledding for any company that earns revenue from hosting marketing messages. But on a five-year timeline, it’s possible that even those difficulties will be ironed out and that Warner Bros. Discovery will quickly become a significant player in the space.

It’s unlikely that faster service alone will turn Warner Bros. Discovery’s fortunes around But as part of a wider array of offerings, where it could also serve as a feeder to a premium streaming service, the potential is compelling. And considering that Netflix and Walt Disney aren’t in the FAST field (yet), they won’t be directly competing with it for a share of the playing field for ad dollars.

For market-watchers, it will be worth paying attention to Warner Bros. Discovery’s next earnings call — currently scheduled for the last week of February. The company will likely face new questions about its FAST plan, which programming it may include. should prefer Westworld And the witch Make their way onto that platform, I expect the future of Warner Bros. Discovery to be very interesting indeed.

Tom Wilton has done business with Netflix but has no position in any of the stocks mentioned. The Motley Fool has positions on and recommends Netflix and Walt Disney. The Motley Fool recommends Warner Bros. Discovery and the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. Motley Fool has a revealing policy.


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