Warner Bros discovery stock rises 16% on restructuring plan

Key points

• Warner Bros Discovery stock jumped 16% Thursday.

• The media giant announced a plan to restructure its business lines.

• Some analysts suggest it could be an opportunity to spinoff its linear networks business.

The media conglomerate announced a new restructuring plan.

It has been a volatile year for Warner Bros Discovery (NASDAQ: WBD), but the stock has been on an upswing this week, rising some 16% Thursday.

The catalyst for Thursday’s spike is the news of the media conglomerate’s plan to restructure. The change, according to the release, is designed to “enhance its strategic flexibility and create potential opportunities to unlock additional shareholder value.”

It’s the latest positive development for the stock, which is nearing a 52-week high, trading at around $12.50 per share. The stock had been down as much as 41% YTD in August when the price sank to $6.64 per share.

But since then, the stock price has almost doubled in value and is now up 9.5% YTD.

Streaming combined with studios

The new corporate structure streamlines Warner Bros Discovery down to two divisions, from three.

Previously, Warner Bros Discovery was split into three major silos. One was Networks, under which was its network TV channels, including TNT, TBS, CNN, HGTV, Discovery, The Food Network, TLC, and others. Then, it had its Studios segment, which incorporates its movie business. Some of its top films this year are Beetlejuice Beetlejuice and Twisters, along with the 2023 blockbuster Barbie. The third segment was Direct-to-Consumer, which includes its streaming properties, Max, HBO, and Discovery+.

The new structure will have just two divisions — Global Linear Networks and Streaming & Studios. Essentially, it lumps together WBD’s studio films and streaming businesses into one, while keeping the networks division the same.

“We continue to prioritize 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 by telling the world’s most compelling stories,” Warner Bros. Discovery President and CEO, David Zaslav said. “Our new corporate structure better aligns our organization and enhances our flexibility with potential future strategic opportunities across an evolving media landscape, help us build on our momentum and create opportunities as we evaluate all avenues to deliver significant shareholder value.”

What this likely means, analysts say, is that the new structure gives Warners Bros Discovery the flexibility to sell or spin off its networks business, which has struggled as more customers turn to streaming options. Notably, the company lost the rights to the NBA, as the league will move from TNT to Amazon next season.

The company will soon begin the restructuring process, but the new corporate structure won’t be in place until mid-2025.

SpinCo spinoff?

Earlier this week, Warner Bros Discovery stock jumped about 5% on the news that it had signed a long-term distribution agreement with Comcast. Through the extension, Xfinity TV customers will get WBD linear networks and HBO as well as expanded streaming rights for Max and Discovery+. It also expanded its relationship with Comcast’s Sky UK to increase WBD content on the SKY platform in the UK and Ireland.

“Through these agreements, we will bring Warner Bros. Discovery’s extensive portfolio to our customers however they want to consume the content across our existing and future linear television and streaming bundles,” Bruce Campbell, chief revenue and strategy officer at Warner Bros., said.

In November, Comcast (NASDAQ: CMCSA) announced its intention to spinoff its NBCUniversal’s cable television networks, including USA, CNBC, MSNBC, Oxygen, E!, SYFY, and Golf Channel, along with some digital assets. The new publicly traded company will be named SpinCo.

“With significant financial resources from day one, SpinCo will be ideally positioned for success and highly attractive to investors, content creators, distributors and potential partners,” Brian Roberts, chairman and CEO of Comcast, said.

This ties back to the restructuring of Warner Bros Discovery, as some analysts have speculated that WBD’s networks arm might be a good fit with SpinCo.

Bank of America analyst Jessica Reif Ehrlich wrote in a research note Thursday that Warner Bros Discovery’s cable TV networks would be a “logical partner” for the Comcast spinoff.

“We strongly believe there is potential for fairly sizable synergies if WBD’s linear networks were combined with Comcast SpinCo,” Ehrlich wrote, reported Reuters. “Further, we believe WBD’s standalone streaming and studio assets would be an attractive takeover target.”

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