Between September and October, shares of Warner Bros. Discovery (WBD) formed a support level at around $8.00. From there, an uptrend continued. On December 11-12, WBD stock soared. It added 15.4% yesterday. Markets responded positively to the new corporate structure.
WBD will form a new corporate structure by splitting into two. Executives believe that it would enhance its clarity and focus. Its Global Linear Networks will maximize profitability and free cash flow. Conversely, Streaming and Studios will focus on delivering growth and strong returns through an increase in invested capital.
WBD hinted that it is open to pursuing value-creation opportunities for both divisions. This could mean an acquisition or a divestiture. Although the company is not clear on what options it will pursue, investors cheered.
Upside
Warner Bros. has a clearer direction on its two growth mandates in networks and streaming. So long as the firm creates content that people want, demand will increase. As a result, revenue will rise, FCF will increase and the firm may pay down its debt.
Downside
The two units might need more management layers. This increases the company’s costs. This may limit the realized savings.
Investors who want exposure to the media sector may consider Paramount Global (PARA) ahead of the buyout, Comcast (CMCSA), Sony (SONY), and Disney (DIS).
