Shares of Warner Brothers Discovery Fall as Company Warns About This

Warner Bros. Discovery shares were falling into the red on Tuesday after the company warned on 2022 profits.

The company said its 2022 profit would be lower than expected in light of a “messy” combination of assets.

CFO Gunnar Wiedenfels said during an earnings conference call that “unexpected projects” and weaker first-quarter WarnerMedia operating profit and cash flow led to the new guidance.

The company also noted that password sharing isn’t a major problem for the company.

“Q1 operating profit and cash flow for WarnerMedia were clearly below my expectations,” Wiedenfels said. “I currently estimate the WarnerMedia part of our profit baseline for 2022 will be around $500 million lower than what I had anticipated, however, with the positive offsets of a couple hundred million dollars on the Discovery side of the combined company.”

Shares dropped nearly 8% Tuesday to close at $20.18 a piece.

Wiedenfels declined to specifically identify all of the unexpected projects, but one of them is CNN+. Chief Executive Officer David Zaslav canceled the WarnerMedia streaming service last week less than a month after it launched. WarnerMedia planned to spend hundreds of millions more on the service.

“Right or wrong, management has made a decision to invest a lot of the incoming funds into a number of investment initiatives,” Wiedenfels explained. “As I’m looking under the hood here, again CNN+ is just one example, and I don’t want to go through a list of specific examples, but there’s a lot of chunky investments that are lacking what I would view as a solid analytical, financial foundation and meeting the ROI hurdles that I would like to see for major investments.”

The newly combined Warner Bros. Discovery is a result of the WarnerMedia-Discovery merger that closed April 8. It debuts as a pure-play media company that investors can compare to Disney, Netflix and Paramount Global.

Zaslav said he hopes to show Wall Street the new entity’s assets, including streaming services HBO Max and Discovery+, can compete globally for market share.

Zaslav confirmed HBO Max and Discovery+ will be combined and offered as a product “we can really drive around the world.”

“There’s meaningful churn on HBO Max — much higher than the churn we have seen,” Zaslav said. “As you begin to manage churn in a meaningful way, that provides real meaningful growth.”

Warner Bros. Discovery said it added 2 million Discovery-related streaming subscribers in the quarter for a total of 24 million. That’s consistent with the 2 million added in the fourth quarter.

The company reported a 13% revenue jump and consistent streaming subscriber growth for its fiscal first quarter Tuesday.

Disclaimer: We have no position in any of the companies mentioned and have not been compensated for this article.