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Warner Bros. Discovery posts wider Q1 loss, even as streaming turns to profit

Warner Bros. Discovery (WBD) reported quarterly earnings before the bell on Friday that came in mixed, as the company prepares for the launch of its new "Max" offering on May 23 in a hotly competitive market for streaming.

The media giant saw streaming losses reverse in the first quarter as subscriber growth came in above consensus estimates. Warner Bros. Discovery reported direct-to-consumer adjusted EBITDA of $50 million in the first quarter, a $704 million year-over-year improvement on a pro-forma combined basis.

The company revised previous guidance, saying it now expects its U.S. direct-to-consumer business to be profitable by this year. Previously, the company said the streaming division will break even by next year before hitting profitability in two years.

"We’ve come through some major restructurings and have repositioned our businesses with greater precision and focus. And we see a number of positive proof points emerging, with DTC perhaps the most prominent," Warner Bros. Discovery CEO David Zaslav said in the earnings release.

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"We made a meaningful turn this quarter with $50 million in segment EBITDA and 1.6 million net adds, and we feel great about the trajectory we are on. In fact, we now expect our U.S. DTC business to be profitable for 2023 – a year ahead of our guidance," he added.

Zaslav said Warner Bros. Discovery is in a position "to drive free cash flow and deleverage our balance sheet," adding he remains "confident" in its strategy and ability to achieve its financial targets.

The embattled media giant is now targeting $4 billion in cost saving synergies over the next two years, up from the previous $3.5 billion.

It reported a net loss of $1.07 billion in the three months ending March 31, up from the prior-year period's $299 million loss on a pro-forma combined basis. It previously reported a loss of $2.1 billion in Q4 and a $2.3 billion loss in Q3.

Free cash flow also disappointed in the quarter, coming in at negative $930 million compared to the prior year period's positive $238 million.

The stock reversed earlier losses to climb about 3% in mid-afternoon trading on Friday. Shares are up roughly 30% year-to-date.

Here are Warner Bros. Discovery's first-quarter results compared with Wall Street's consensus estimates, as compiled by Bloomberg:

  • Revenue: $10.70 billion versus $10.73 billion

  • Loss per share: -$0.44 versus -$0.05

  • Subscriber net additions: 1.6 million versus 911,000

Warner Bros. Discovery's streaming strategy will be paramount for the company, which has had a slew of departures since the combination of WarnerMedia and Discovery in April of last year. The streaming business is a crowded field, with competitors like Disney (DIS), Netflix (NFLX) and Apple (AAPL) all vying for subscribers in the face of mounting losses.

In April, the company unveiled key details about its upcoming streaming launch, which will include content from both HBO Max and Discovery+, as Zaslav looks to leverage its wide portfolio of assets to boost streaming subscriptions.

The company credited the boost in Q1 subscriber net additions to recent show launches like "The Last of Us."

David Zaslav, CEO of Warner Bros. Discovery, addresses the audience during the Warner Bros. Pictures presentation at CinemaCon 2023, the official convention of the National Association of Theatre Owners (NATO) at Caesars Palace, Tuesday, April 25, 2023, in Las Vegas. (AP Photo/Chris Pizzello)
David Zaslav, CEO of Warner Bros. Discovery, addresses the audience during the Warner Bros. Pictures presentation at CinemaCon 2023, the official convention of the National Association of Theatre Owners (NATO) at Caesars Palace, Tuesday, April 25, 2023, in Las Vegas. (AP Photo/Chris Pizzello) (Chris Pizzello/Invision/AP)

On top of a competitive streaming market, the company has also struggled with an unfavorable ad environment, which pressured results in the first quarter.

Network advertising revenue tumbled by another 15% in the first quarter from the year-earlier period, or 14% excluding foreign exchange, after falling 14% (ex foreign exchange) in Q4 as macro headwinds continue to weigh on legacy media giants.

Still, despite advertising weakness, falling linear network revenue and looming recession fears, Wall Street analysts have praised the company's turnaround plan as it continues to execute on its cost-cutting initiatives and further delever its balance sheet.

Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at alexandra.canal@yahoofinance.com

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