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Warner Bros. Discovery, Inc. (NASDAQ:WBD) represents a unique opportunity in the entertainment and media industry. The company, which is the result of a merger between WarnerMedia and Discovery, Inc., boasts some of the most in-demand IP in the space. While WBD has yet to take full advantage of its vast IP library, the company is set to fully capitalize on its popular franchises in the coming years.
The recent dip in WBD’s share price presents a great investment opportunity.
Unparalleled Content Portfolio
It is hard to believe that WBD arguably has the best content portfolio out of all the major players in the space. After all, WBD is only valued at a fraction of Netflix (NFLX) and Walt Disney’s (DIS) valuations at a market capitalization of ~$25B. The rapidly waning interest in juggernaut IPs like Marvel and Star Wars, which are not owned by WBD but rather by Disney, should also help bolster WBD’s own IP in the coming years.
WBD’s diverse and expansive content library includes the likes of DC Comics, Game of Thrones, House of the Dragon, Harry Potter, Barbie, and even media giant CNN. WBD has yet to fully leverage the power of its IPs given the restructuring activities that have taken place after its merger with Discovery. However, as the dust settles on the company restructuring, WBD is well positioned to capture more audience attention.
A large number of movie and streaming hits over the past year have been WBD IP, proving that the company’s IP is incredibly valuable. For instance, WBD’s major streaming releases House of the Dragon and The Last of Us have broken several streaming records. WBD’s movies are arguably performing even better, most recently with Barbie generating over $1.4B in box office revenues.
WBD
Capitalizing on Disney’s Recent Stumbles
It appears as if Disney’s flagship franchises Marvel and Star Wars have imploded over the past few years. Whereas any releases from these brands would have been surefire hits in the past, their recent releases now account for some of the most historic flops in the history of the movie industry. The recent poor performance of these franchises is reflected in their recent box office performances.
Most notably, The Marvels only generated ~$206M in box office revenues on a budget of ~$275M, which does not account for marketing expenses. To get a perspective on how poorly this film performed, the first release Captain Marvel reported a box office revenue of ~1.13B. Star Wars has not fared any better, with recent Disney+ releases like Andor and Ahsoka reporting surprisingly low numbers. Even the recent season of The Mandalorian has performed well below expectations.
This represents a great opportunity for WBD, especially as some of WBD’s largest franchises directly compete with Marvel and Star Wars for audience attention. WBD is notably restarting its DC universe with James Gunn at the helm, which bodes well for WBD given Gunn’s success at Marvel. As competing franchises wane in popularity, WBD’s franchises have a chance to take center stage in the coming years.
Major Challenges Remain
The media and entertainment landscape has become more crowded than ever, with traditional streaming powerhouses like Netflix and even technology giants like Amazon (AMZN) and Apple (AAPL) investing billions of dollars into new content. This means that WBD will be competing against incredibly well-run and resource-rich companies moving forward.
WBD’s debt burden also remains a significant issue. The company’s debt load of ~$56M has thus far limited the company’s flexibility and will likely continue to do so for the foreseeable future. Having such a huge debt load means that WBD will likely have to give up on potential growth opportunities in order to reduce debt load over time. This has already played out in recent years, as the debt has forced WBD to limit its advertising spend and even pull several movies and shows for tax benefit purposes.
Conclusion
WBD’s recent slate of successes, from House of the Dragon, The Last of Us, Barbie, and more recently Wonka, is a clear indication that the company is sitting on a gold mine of IP. At its current market capitalization of $25B, the company is valued at just a fraction of Netflix and Disney, which stand at $210B and $165B, respectively. Warner Bros. Discovery, Inc. is a great buying opportunity for investors interested in the media and entertainment landscape.
