Shares of Warner Bros.  Discovery collapsed, media giant 'dealing with three different problems'

Warner Bros. Discovery’s (WBD) shares sank another 14% in mid-afternoon trading Friday after the company reported third-quarter earnings that missed expectations everywhere.

“This is a legacy company from the past trying to be a future company of tomorrow,” Julia Alexander, director of strategy at Parrot Analytics, told Yahoo Finance Live (video above).

Alexander added that the media giant “is a three-pronged company dealing with three different problems,” which she described as a struggling theater industry struggling to reach pre-pandemic levels, a declining linear TV business that — coupled with a softening advertising market — lost revenue and subscribers, as well as a shaky direct-to-consumer segment that was hit by restructuring headwinds and criticism about profitability.

WBD CEO David Zaslav indicated on the earnings call that more changes are coming, revealing that the company has increased its target for merger synergies to $3.5 billion of 3 billion dollars with an eye towards doubling the content and options.

“We lean on Zaslav said on the call, explaining that WBD has spent more on content than ever before — addressing recent headlines of reduced production budgets, project closures, along with the removal of several titles from the HBO Max platform. He went on to say that “it takes real courage” to restructure the company as a whole.

“We’re going to see a lot more layoffs, both on the programming side and on the labor side,” Alexander suggested. More than 1,000 jobs are reported to have been cut so far.

It is a legacy company from the past trying to be a future company of tomorrow…Julia Alexander, Parrot Analytics director of strategy at Warner Bros. Discovery

According to data from Parrot Analytics, HBO Max has nearly 20% of movie demand across all major streamers amid an impressive content library that includes recent hits like Batman and Elvis.

However, demand for the platform itself fell significantly last quarter, going from 11.5% in the second quarter to 10.8% in the third quarter, suggesting that consumers may be looking elsewhere for home entertainment.

“If that demand continues to decline from HBO Max, even with hit shows like ‘Dragon House,’ that really limits how much that platform can grow,” Alexander warned, underscoring the importance of DTC growth to concerned investors.

"White lotus" (HBO)

“White Lotus” (HBO)

What’s next after the third-quarter earnings miss?

Although “House of the Dragon” record success, the company added just 2.8 million direct-to-consumer subscribers in the third quarter versus expectations for 3.27 million. Management has set a long-term target of 130 million paying users by 2025.

The company’s anticipated combined service, originally scheduled to launch in the summer of 2023. will now debut in spring 2023. Executives stressed that the media giant would “aggressively fight” an ad-supported streaming market that now includes Netflix (NFLX) and will soon include Disney (DIS).

“We expect a healthy shift with the launch of our combined service and expanded global footprint,” Zaslav told investors. “We worked very hard. We can make the service available to users around the world and get the business running on all cylinders.”

Management hinted that price spikes are likely to come to the platform in 2023 as well.

“By 2023, HBO Max will not have raised its price since launch, which we believe is a possibility,” noted JB Perrette, the company’s president of streaming.

Profitability continues to be a major concern for investors as faith in streaming’s fundamentals wanes. WBD reiterated its 2022 adjusted EBITDA guidance of between $9 billion and $9.5 billion, down from a previous forecast of $10 billion.

Revenue fell 11% to $9.82 billion, while the company also reported a net loss of $2.3 billion, following a $3.4 billion loss in the second quarter.

Alexandra is a senior entertainment and media reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at [email protected]

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