WBD Reports $2.9 Billion Loss in Q1 Due to M&A Costs, Including Paramount’s Netflix Termination Fee
Warner Bros. Discovery Reports $2.9 Billion Loss in Q1
Warner Bros. Discovery (WBD) revealed a significant first-quarter loss of $2.9 billion, attributed largely to a one-time accounting issue. This loss includes a $2.8 billion termination fee related to the recent merger dynamics with Paramount.
The company clarified that the termination fee is refundable under specific conditions, such as if WBD terminates the merger agreement with Paramount for a more advantageous proposal or if there are violations of interim operational covenants.
According to Paramount CEO David Ellison, the merger between Paramount and WBD remains on track to close in the third quarter. Earlier developments included Netflix’s announcement in December to acquire Warner Bros. streaming and studios, which momentarily derailed Ellison’s ambition to purchase all of WBD’s assets. However, after months of negotiations, Paramount ultimately offered $31 per share in cash, leading to the recent merger announcement. WBD was required to pay Netflix the $2.8 billion termination fee for backing out of a signed agreement, which Paramount later covered as part of their deal.
Despite the overall losses, WBD’s streaming service, HBO Max, performed well, achieving a 7% increase in revenue, amounting to approximately $2.9 billion, fueled by popular programming and global expansion. Direct-to-consumer advertising revenue surged by 19%, and profits rose by 17% to $433 million.
In the studio segment, both sales and profits increased, driven by theatrical releases and content licensing as HBO Max expanded its reach. However, adjusted EBITDA, a key metric for investors, remained flat at $2.2 billion due to gains in streaming and studios being offset by continued declines in global linear networks. Revenue in this sector fell by 9% to $4.4 billion, with profits dropping 10% to $1.6 billion, partly due to a 12% decline in linear advertising attributed to the absence of NBA content.
WBD concluded the March quarter with a substantial gross debt of $33.4 billion. Additionally, the company’s free cash flow turned negative, recording a loss of $208 million, a stark contrast to the positive $553 million reported the previous year, partially due to $100 million in separation and transaction-related expenses.
Total revenue for WBD decreased by 3% to $8.9 billion, with net losses increasing from $453 million in the prior period.
Executives will address analysts in a call scheduled for 4:30 PM ET.
More updates are expected.
