Warner Bros. Discovery ( WBD ) reported second-quarter earnings after Wednesday’s bell that missed expectations on both the top and bottom lines, while the company took a massive $9.1 billion impairment charge related to its TV networks unit. Including an additional $2.1 billion in costs related to its merger, the company took an $11.2 billion hit to its balance sheet last quarter.
The company also reversed earlier profit trends in its broadcast business, despite adding nearly 4 million subscribers in the quarter, while its linear TV unit continued to deteriorate.
It marked the first earnings report for the company since Warner Bros. lost a key media rights deal with the NBA. The company filed a lawsuit against the league over what it said was the NBA’s “unwarranted rejection” of the company’s proposal for matching rights.
Revenue came in at $9.7 billion for the quarter, missing Bloomberg consensus expectations of $10.12 billion and a 6% decline from the $10.36 billion seen last year.
The company reported an adjusted loss per share of $4.07 versus a loss of $0.51 in the year-ago period and below consensus estimates of $0.21 as a result of the impairment charge.
Free cash flow, which served as a bright spot in the first quarter, bucked that trend this time around. The metric fell 43% year over year to $976 million and also missed Bloomberg consensus expectations of $1.2 billion.
The stock fell about 7% in after-hours trading as investors digested the results.
The company’s direct-to-consumer (DTC) business served as a bright spot in the quarter. He added 3.6 million Max subscribers in the middle of the debut of “House of the Dragon” season 2. That was ahead of Bloomberg consensus expectations of 1.89 million and also ahead of 1.80 million subscribers added in the second quarter of 2023.
Broadcast advertising revenue rose to $240 million, beating Bloomberg estimates of $191 million and up 98% from the $121 million the company reported in the year-ago period. The DTC division, however, posted a loss of $107 million after reporting a profit in the first quarter.
Uncertain future between linear battles
In recent media rights negotiations, the NBA passed on WBD in favor of two newcomers: tech giant Amazon ( AMZN ) and Comcast’s ( CMCSA ) NBCUniversal. The league was able to strike a new rights deal with its other current media partner, Disney ( DIS ). WBD’s current rights will expire at the end of next season.
Analysts have warned that the loss of those rights will affect the future success of its Max streaming service and is likely to hasten the demise of its linear networks, which are already in freefall.
Network advertising revenue fell 10% in the second quarter from the year-ago period. The company reported network advertising revenue of $2.21 billion, missing Bloomberg expectations of $2.26 billion.
That pressured second-quarter EBITDA, with full-year adjusted EBITDA now at risk of falling below $10 billion, according to the latest Bloomberg estimates. That’s $4 billion below what analysts had expected at the time of the merger.
Rumors have been rife about the company’s next move, with Bank of America analysts laying out potential strategic options in a recent report that could include a spin-off of the company’s digital broadcast and studio businesses from its linear TV unit. inherited.
Alexandra Canal is a senior reporter at Yahoo Finance. Follow him to X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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