Warner Bros. Discovery reported spotty financial results in the second quarter, but delivered better-than-expected free cash flow.The company posted a loss per share of 51 cents, which was worse than the 42 cents expected by Wall Street analysts. Revenue dipped 4% from the prior-year quarter to come in at $10.358 billion, a shade less than the Street’s number. Ditto streaming subscriber numbers, which showed a loss of 1.8 million subscribers and a tally of 95.8 million.The meltdown of The Flash (which took in just $268 million at the global box office) and ongoing struggles in the ad sales marketplace and the linear TV business weighed on results in the studio and networks divisions, respectively. Revenue fell 8% in the studio unit to reach just shy of $2.6 billion, while revenue stayed flat in networks at $5.6 billion as adjusted EBITDA slipped 4%. The meteoric success of Barbie in July came after the second quarter, but that didn’t prevent the company from tinting its official earnings release bright pink in celebration of the Mattel breakout.Free cash flow was by far the standout financial metric, reaching $1.7 billion, more than double the $789 million of the year-ago quarter and well ahead of Wall Street forecasts. That number, plus diminishing streaming losses and a revised outlook for $5 billion in cost savings stemming from the merger of WarnerMedia and Discovery (up from prior guidance for $4.5 billion) sent Warner Bros. Discovery shares up slightly in pre-market trading. The stock has languished ever since the $43 billion deal closed in April 2022, even dipping below $9 last December.Investors have been concerned about the company’s debt, which ended the quarter at $47.8 billion, with a leverage ratio of 4.6 times trailing earnings. “We remain bullish with respect to our delevering story and expect to be comfortably below 4.0x levered by the end of the year and at our target of 2.5-3.0x gross leverage by the close of 2024,” CEO David Zaslav said in the earnings release.Management had been signaling that the Max rebrand unveiled in the spring would result in churn as a number of subscribers to both HBO Max and Discovery+ cut their subscriptions to the latter in favor of the combined service. Marketing costs related to the Max launch on May 23 also took a toll on the quarterly results. Discovery+ is still offered as a cheaper stand-alone offering, but a lot of its programming can be found on Max.The streaming unit posted revenue of $2.7 billion. Adjusting for the timing of the April 2022 merger close (which affected the second quarter results in 2022), revenue increased 14%. Operating expenses decreased 8% on a pro forma basis.In terms of the bottom line, streaming turned a corner in the first quarter and the company updated its outlook to project it would become profitable by the end of this year. Previously, it had guided to profit by 2025. Zaslav, an outspoken critic of scripted streaming excesses when he was running Discovery and even when he took the reins at the home of Game of Thrones, has trimmed streaming spending (sometimes to the dismay of the creative community) and also reversed prior management’s strategy on exclusivity and licensing.Like its peers in the traditional media business, Warner Bros. Discovery is managing through a challenging operating environment. The company has removed significant staffing layers and sold off non-core assets in pursuit of its cost savings target, but the climb-down in expenses has coincided with the need to invest in original streaming programming for Max. Cord cutting is taking a toll on traditional network owners as the pay-TV bundle shrinks, taking billions in carriage revenue with it. The advertising climate is also fairly chilly, with many upfront sellers reporting sales results at or slightly below 2022 levels.
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