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Why Warner Bros. Discovery Just Lowered its Outlook

When Warner Bros. Discovery (WBD) reported billions in ticket sales from its blockbuster movie, Barbie, shares traded as high as over $14.50. The run-up in August did not last. Last week, the firm lowered its adjusted EBITDA outlook.

WBD expects a lower EBITDA, due largely to the Hollywood strikes. The firm expects a cost in the range of $300 million to $500 million. Its full-year 2023 EBITDA is now $10.5 billion to $11 billion. WBD stock is not the only under-performer. Charter (CHTR) is disputing renewal rates with Disney (DIS). Sony (SONY) is well off its $100 peak set in June.

Paramount (PARA), which has a better debt/equity profile of 0.8 times compared to WBD’s 1.04x, is hovering near 52-week lows.

WBD Increase Free Cash Flow Target

WBD expects a free cash flow of at least $5 billion. This is helped by the strike, along with Barbie ticket sales. The firm has tailwinds from the movie. It may cross-sell related Barbie products and content. However, markets are taking profits now instead of waiting for the halo effect from those sales.

Your Takeaway

Media companies are out of favor. The sell-off in the sector accelerated recently. Markets are pricing in the risk of higher wage costs once the strike ends. Next year, the cost of renewing debt rises. This is another headwind for the industry.