WARNER BROS Why The Stock Is So LOW PRICED (down 50% from merger) How AT&T Killed The Price!

AT&T gave it's shareholders 71% of Warner Brothers Discovery for free like an inheritance when the merger with Discovery was completed. It was necessary to do it this way to save billons taxes for AT&T and while Zaslav and his team were well aware this was going to happen (so they are at least partially responsible too) this is absolutely the main reason the stock has tanked by 50% since the merger.

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Warner Bros. Discovery: Negative Sentiment Is Overblown
https://archive.ph/5l6Wm#selection-1140.0-1191.10

WARNER BROS Why The Stock Is So LOW PRICED (down 50% from merger) How AT&T Killed The Price!

Two of the biggest concerns about WBD aren’t really that serious.
The declining cable business is not as bad as it seems.
The huge debt load is actually manageable.

Warner Bros. Discovery (NASDAQ:NASDAQ:WBD) stock price currently trades at $13.20, down 83% from its all-time highs in March 2021. Some reasons for this massive decline include:
Reason 1: Dividend-seeking AT&T (T) shareholders selling WBD stock
Reason 2: Netflix (NFLX) losing of 200,000 subscribers in Q1Y22
Reason 3: Strong competition in the streaming space
Reason 4: High level of debt compared to peers
Reason 5: Messy post-merger operations
Reason 6: Lousy macroeconomic outlook
Investment Thesis
In this article, I analyze two main contributing factors to WBD’s depressed price to see if WBD’s price is justified. The two factors are WBD’s declining cable business and its huge debt load.
Declining cable business
It is no surprise that cable subscriptions have been declining fast. Here are some stats:
1.According to Nielsen ratings, TV viewing has been dropping about 10% per quarter.
2.In total, major US cable TV and satellite TV have lost 25 million subscribers since 2012, and are projected to lose another 25 million by 2025.
3.Adults ages 18 through 29 are the largest age group without cable, with 34% of them not having subscriptions to satellite or cable TV services. It seems that the younger generation defaults straight to streaming and do not even consider cable TV as an option for content consumption.
However, not many know that streaming revenues are growing faster than declining cable revenues. Based on the projections by Statista in the figure below, a company that engages in both cable TV and streaming would experience net revenue growth. This is because revenue growth from Streaming would outpace declining revenue from Cable TV. This may mean that companies like WBD, Disney (DIS) and Paramount (PARA) would experience a 36% revenue growth from 2016 to 2026, a CAGR of 3.2%.
It is important to note that the projections above only take account of revenues from subscription costs and not revenues gained from ads. Since ads will become more personalized in the streaming world, we can assume that ad revenue generated from streaming services will be greater than from cable tv services. For example, Discovery+ makes $11 a US subscriber from a $5 monthly fee and over $6 in advertising for only 3 minutes of ad time vs. $7 from their Cable TV services. This is 57% higher. It was no surprise therefore that WBD CEO stated, “If we lost a million [cable] subs…all we need to do is pick up 650,000 [streaming] subs in order to be making more money.”
Additionally, traditional cable TV companies that are moving into streaming can use the same content and earn from multiple channels.
Distribution of cord cutters in the United States in 2020 and 2021, by age group
Distribution of cord cutters in the United States in 2020 and 2021, by age group
Statista
As can be seen from the graph, younger generations embrace streaming services faster than older generations do. Because of this lag in the adoption of streaming between the various age groups, there will be a period where households subscribe to both streaming services as well as cable services. This means companies like WBD, DIS and PARA can earn “double” the revenues for each show that it creates. WBD is producing Game of Thrones, and it can air it on both HBO Max and Linear TV, while NFLX can only air it on one platform. By “double” I do not mean exactly two times the revenues, but rather more than 1 time.