Warner Bros. Discovery (NASDAQ:WBD) was downgraded from Outperform to Market-Perform by Bernstein in a note Tuesday, reflecting a dimmer outlook for the company's recovery.
The firm has also lowered its price target to $8 from $10, citing significant challenges ahead.
Bernstein analysts expressed disappointment in WBD's Q2 performance, noting that the company "missed on all key financial metrics."
Specifically, revenue declined by 6%, EBITDA by 16%, and free cash flow by 43% year-over-year. The firm notes that since the WarnerMedia-Discovery merger in April 2022, WBD's stock has plummeted nearly 70%, making it one of the worst performers among its peers.
According to Bernstein, the company is facing "secular challenges" in its linear TV business and has yet to achieve the necessary scale in its direct-to-consumer (DTC) segment.
Analysts explain that investors are increasingly frustrated with the company's uncertain future, particularly in light of the declining EBITDA and elevated leverage ratio, which currently stands at 4x.
The analysts also highlighted the potential impact of losing NBA broadcasting rights, which have been a cornerstone of TNT's programming for decades. This loss is expected to further exacerbate WBD's challenges.
Bernstein originally initiated coverage on WBD with the belief that the company could leverage its strong intellectual property (IP) and studios to offset linear declines through growth in DTC.
However, analysts now question whether WBD can sustain or grow EBITDA in the near term, stating that "growth by any measure is challenging" and that investor confidence is waning.
In conclusion, Bernstein sees a "longer road ahead to recovery" for WBD, with limited upside potential in the near future.