It’s been another nice day of gains in the market, at an index level. However, as with any broad-based move higher, there are always winners and losers generating headlines. Topping the list of today’s biggest movers to the downside is Warner Bros Discovery (NASDAQ:WBD), with WBD stock hitting a fresh 52-week low following disappointing earnings.
In fact, the company’s recent decline has led to a record low for Warner Bros Discovery, given the newly listed nature of the company. At one point today, shares of WBD stock fell to $8.25 per share, which briefly led to a valuation of less than $20 billion for the media giant.
The company reported revenues that declined 7% to $10.3 billion, missing expectations by around 1% ($140 million). Additionally, adjusted earnings also missed expectations, driven by larger-than-expected losses from Warner Bros’ streaming and studio divisions.
These results underscore the difficulty of the media business and a rationale for investors to continue to rotate out of highly indebted legacy media names. Let’s dive into what to make of these results and whether this selling pressure is warranted today.
Why Is WBD Stock Plunging Today?
Today’s nearly 10% move lower in WBD stock is a shocker for many investors. Indeed, the market had already priced in relatively weak revenue and earnings deceleration, but the extent to which revenue and earnings declined shocked even the most conservative bulls.
Now, this earnings report wasn’t entirely negative. Warner Bros Discovery did post better-than-expected cash flow numbers, largely due to the Hollywood strikes affecting content development. The company used these strikes as an opportunity to pay down debt, leading to this better-than-expected free cash flow metric.
Ultimately, free cash flow is what most valuation models are built on. A company is supposed to be worth the aggregate sum of future cash flows, discounted to the present. If that’s the case, Warner Bros Discovery’s recent $3.3 billion in free cash flow for the quarter puts this stock at a very attractive price/free cash flow multiple. And with the debt paydown, WBD stock now trades with a net leverage ratio of 3.9 times.
Those numbers are much better than those reported by Warner Bros Discovery in recent quarters, so maybe investors can take some solace in today’s decline. But suffice it to say, WBD stock is one that certainly does not have positive momentum right now. Accordingly, it may pay to let the dust settle on this name, at least for now.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
