Warner Bros. Discovery missed analyst targets for both profit and revenue in the fourth quarter, causing shares to fall about 9% in premarket trading. Despite this, the company managed to boost its free cash flow significantly, ending 2023 with $6.16 billion in free cash flow, up 86% from the previous year.
Chief Executive Officer David Zaslav has made it a priority to increase free cash flow and reduce the company’s debt. Warner Bros. Discovery paid down $1.2 billion of debt in the fourth quarter and $5.4 billion in debt throughout 2023, leaving $44.2 billion in gross debt remaining. This focus on boosting free cash flow has been successful, with the company generating $3.31 billion in free cash flow in the fourth quarter.
Warner Bros. Discovery’s flagship subscription streaming service, Max, achieved profitability in 2023, with adjusted EBITDA of $103 million for the full year. Zaslav has implemented significant cost-cutting measures for the streaming service since the merger of WarnerMedia and Discovery in 2022, leading to increased profitability. This success has put Max ahead of competitors like Disney, NBCUniversal, and Paramount Global in reaching profitability.
Subscriber Growth
The company reported a 2% increase in global direct-to-consumer subscribers, reaching 97.7 million. This growth, coupled with the profitability of the Max service, bodes well for Warner Bros. Discovery’s future in the streaming space.
Financial Performance
In the fourth quarter, Warner Bros. Discovery reported a net loss of $400 million, or 16 cents per share, compared to a loss of $2.1 billion in the same period last year. Adjusted EBITDA for the quarter was $2.5 billion, down 5% from the previous year, primarily due to studio revenue declines resulting from strikes by industry guilds. Studio revenue fell 17% to $3.17 billion, with adjusted EBITDA for the unit dropping 29% to $543 million.
Challenges Ahead
Despite the increase in free cash flow and the profitability of the Max service, Warner Bros. Discovery faces challenges in linear television advertising revenue, which declined by 14%, and actual distribution revenue, which dropped by 4%. The company’s plan to offer a smaller, more affordable bundle of linear networks focusing on sports programming in partnership with Disney and Fox reflects efforts to adapt to changing consumer preferences and the decline in cable TV subscriptions.