Warner Bros. Discovery: Clear Content King Amidst Dune’s Success (NASDAQ:WBD)

Warner Bros. Discovery, Inc. (NASDAQ:WBD) is one of the smaller players among the top media/entertainment conglomerates in terms of market capitalization. In fact, WBD’s valuation of $21B is only a small fraction of the size of Disney’s (DIS) and Netflix’s (NFLX) respective valuations of $200B and $260B, respectively. As such, it may come as a surprise that WBD actually contains the most valuable intellectual property, or IP, in the industry.

WBD is undoubtedly facing huge financial issues, which is the primary contributing factor to its relatively low valuation. However, the company is on a solid path to monetize on its hugely popular IP and ease its debt load in the coming years. The new management at WBD has done a great job of garnering momentum for its popular franchises and successfully establishing relatively new IP.

WBD has seen its share prices plummet in recent quarters, making it one of the cheapest media/entertainment companies.

Beating Disney in All Genres

Over the past few years, WBD has done a great job of leveraging its most popular IPs. WBD’s main competitor Disney, on the other hand, has witnessed the value of its top IPs plummet in the wake of unprecedented flops and controversies. For instance, Marvel and Star Wars have seen viewership and general interest dramatically decline as a result of bad storytelling, oversaturation, and core fanbase alienation.

Meanwhile, WBD has grown interest in incredibly promising IPs like Game of Thrones and Dune as a result of high-value and critically acclaimed tv series and movies. The Dune franchise, for instance, has never seen more interest as a result of the critically acclaimed upcoming Dune: Part Two, and is expected to smash previous box office expectations. In fact, many are already comparing the potential of Dune to that of Star Wars before Star Wars began its decline.

Star Wars has generated $46.7B in revenue when accounting for all major sources of revenue, i.e., box office, merchandise sales, etc. If Dune can even generate a fraction of this figure, it will be a major value add to WBD. This is not as unlikely as it may seem as Dune arguably has an even more complex and intriguing universe than Star Wars. What’s more, technology has finally progressed to the point where the setting of Dune can be realistically portrayed in film and TV.

WBD’s DC now even stands a chance of competing against Marvel as a result of Marvel’s recent box office woes. While the new James Gunn-led DC universe has yet to prove itself, there stands a high chance that DC could surpass Marvel over the next decade given James Gunn’s success in the superhero genre. The DC cinematic universe has yet to be fully explored, which leaves a large opportunity for WBD to capitalize on this franchise.

WBD arguably holds the top franchises in all large money-making genres. The company’s The Lord of the Rings and Game of Thrones franchises dominate the fantasy genre. The company now has a real chance of supplanting Star Wars in the science fiction genre with Dune as was previously mentioned. WBD is even the dominant player in the magic genre with its Harry Potter IP. Finally, the revamped DC has a real chance of taking away the superhero crown from Marvel in the coming years.

WBD is even becoming a dominant force in less popular, but increasingly lucrative genres. The company’s smash hit Barbie, for instance, firmly cements it as the dominant player in the toy film genre. WBD’s surprisingly success with The Last of Us also puts the company firmly at the forefront of the Zombie genre, especially with The Walking Dead’s decline in recent years.

Leveraging Netflix

While Netflix is also a major competitor to WBD on the streaming side, Netflix is not competing in the same genres as WBD in the same way that Disney is. In fact, the presence of Netflix may ultimately benefit WBD by allowing WBD to expose its content to a wider audience. WBD has already started licensing a lot of its popular shows and series to Netflix, which has actually caused viewership bumps on its own streaming platform Max.

Not only is WBD able to further monetize on movies and tv shows by licensing them to Netflix, but the company is also attracting more attention to its own streaming service via the success of its licensed shows. WBD’s streaming chief content officer Casey Bloys stated that “without doing a thing on Max, the viewership of or engagement of ‘Ballers’ and ‘Insecure’ really saw a spike when it was on Netflix.” As long as WBD is able to produce quality content, the presence of Netflix could ultimately benefit the company in the long-run.

Financials Remain a Huge Issue

Debt remains WBD’s most pressing issue, as was highlighted in the company’s recent 2023 Q4 earnings results. WBD sits on a massive debt pile of $44.2B that it is working relentlessly to pay off. CEO David Zaslav stated that the company paid down $5.4B in 2023 and expects to continue to de-lever throughout the year. Despite the company’s continued efforts on this front, managing such a high debt load is clearly taking a toll on the company.

WBD’s Q4 revenue figure of $10.28B declined 6.6% YoY and was a major contributing factor to the stock’s large decline after earnings. If WBD cannot raise revenues relatively quickly, the company could see its debt situation spiral out of control. While WBD is well positioned to beat expectations as a result of its incredibly strong lineup, a few badly timed flops in the near term could easily sink the company.

Conclusion

WBD owns several franchises likely worth tens of billions of dollars, including DC, Harry Potter, Lord of the Rings, and now potentially Dune. Beyond these flagship franchises, WBD has an incredibly deep lineup that includes a plethora of franchises that are likely each worth billions, including Game of Thrones, Barbie, The MonsterVerse, Wonka, and potentially The Last of Us. Given the enduring and growing popularity of the Game of Thrones franchise, WBD could easily see its Game of Thrones franchise grow to be one of its top performers along with other flagship franchises like DC or Harry Potter.

Given that it takes time to properly develop such valuable IP, their value has yet to meaningfully show up in WBD’s financials. As such, investors are heavily undervaluing Warner Bros. Discovery, Inc. stock at its current valuation of $21B. Despite the fact that WBD’s franchises are far greater potential than even those of its largest competitors, who often boast valuations an order of magnitude greater than that of WBD, WBD has far more room to grow.