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Why is Warner Bros Discovery splitting its cable networks from streaming business?

by admin December 13, 2024
December 13, 2024
Why is Warner Bros Discovery splitting its cable networks from streaming business?

Warner Bros Discovery Inc (NASDAQ: WBD) announced plans to split its cable networks from its streaming and studio operations on Thursday.

Shares of the mass media behemoth are up 15% at writing.

“We continue to prioritise ensuring our Global Linear Networks business is well positioned to continue to drive free cash flow, while our Streaming & Studios business focuses on driving growth,” David Zaslav – the company’s chief executive said in a statement today.

WBD expects the restructuring to be complete before the second half of 2025. Its share price is now up more than 85% versus its low in August.

Restructuring opens doors for future deals

Warner Bros Discovery expects a simpler business structure that highlights the value of each division to make it more attractive for potential deals or acquisitions.

Creating distinct linear and streaming divisions will enable the management to devise more targeted strategies and operational efficiencies that help each segment realise its true potential.

The announcement arrives at a time when the TV business more broadly is scrambling to win advertising dollars amidst a continued decline in subscribers.

Last month, peer Comcast also announced plans to separate its cable networks amidst a mass exodus of customers from its TV business.

However, the company’s spin-off plans have failed to boost its stock price in recent weeks.

Warner Bros Discovery to play offense and defense

WBD wants to restructure into a distinct linear division and a more profitable streaming business also because it will offer clearer visibility into the performance and profitability of each segment.

The transparency is typically valuable for investors as well as international decision-making.

Warner Bros Discovery’s two-division strategy will enable it to play both offense and defense. The TV business will serve as its cash cow, helping lower debt on its balance sheet – while the streaming unit will commit to growth.

All in all, the move could improve WBD’s strategic options, including a potential merger, spin-off, or other notable plays aimed at creating additional shareholder value.

That’s why investors are reacting positively to the news as evidenced in a 15% stock price rally today.  

Is there any upside left in WBD stock?

Part of the recent strength in Warner Bros Discovery stock has been related to a multi-year distribution agreement it signed with Xfinity in the US and Sky in the United Kingdom.

The agreement sets the stage for its Max streaming service to launch in Europe.

So, it looks like the stars are aligning well for WBD. That’s why analysts at Benchmark continue to see an upside in its shares to $18.

Their price target indicates potential for another 45% upside from current levels. WBD stock does not, however, pay a dividend in writing.

The post Why is Warner Bros Discovery splitting its cable networks from streaming business? appeared first on Invezz

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