Warner Bros Q2 Results Soft Across All Segments; Credit Negative

Baa3/BBB-/BBB- EUR Spreads +5-11bps

Soft set of results all round with multiple pressure points continuing to weigh on each of the segments with the biggest concern around another big decline in Networks advertising (-11% YoY) driven by general audience declines of 13% though we also note lower volume of licensing deals in DTC and Studios. Results were accompanied by a USD 9.7bn impairment including on the NBA. DTC subscriber adds were a strong point and speak to it’s growth potential though the segment is still loss making for now.

• Q2 revenue -5% YoY cFX (-4% vs. BBG consensus) with Networks -8% YoY (roughly half the business), DTC/Streaming -5% YoY and Studios-4% YoY (roughly one quarter each) for misses of 1.6%, 5.1% and 10.6% respectively.
• EBITDA was -15% YoY (-13.4% vs. BBG consensus) with Networks -7%, DTC (USD 107mn loss from USD 3mn in Q223) and Studios -24%.
• Q2 FCF was -43% YoY from USD 1.7bn to USD 1bn on the back of CFOO -39% YoY from USD 1bn to USD 1.2bn on the back of the lower operating profits as well as high net content investment and the lower expenditure last year due to the strikes.
• Net leverage stands at 4x from 4.1x at Q1 with gross debt of USD 41.4bn from USD 43.2bn at Q1 and cash of USD 3.6bn from USD 3.4bn.
• 3.6mn DTC adds came against consensus 1.9mn.
  
  
• On the call, when asked around a more aggressive move to unlock DTC value given recent rumours; “don't expect a specific answer on any individual speculations or rumours…we are very well aware of our responsibility to have a view on whatever strategic options are out there…We are very clearly focused on evaluating everything beyond just running the operational business. So we've said before, you shouldn't be surprised to see us engaging in whatever M&A processes are going on out there. You shouldn't be surprised to see us engaging in partnership discussions”.
• No guidance given though when asked about H2 expectations; “we're expecting a very significant step forward on the DTC side” while also pointing out they have two big films in the pipeline versus just one last year and that TV should get better helped by the strike impact on last year numbers. “We've talked for a while about the $1 billion mark in EBITDA for 2025. That is a starting point, not an ending point. So, we have a lot of confidence in that”. Little in the way of new info on the NBA situation.