Warner Bros. Discovery (NASDAQ:WBD) has been downgraded from Outperform to Neutral with a $9 price target by Macquarie analysts following the NBA's decision to reject WBD's matching bid for broadcast rights.
The firm deemed the NBA rights crucial to the future success of WBD's Max streaming service and now believes their loss could accelerate the downturn in WBD's linear networks.
Macquarie expressed significant concern over the implications of this decision. "Losing these key rights means it now loses a core content asset for both its linear networks and its Max streaming service," the analysts stated.
They noted that ad revenues are expected to drop sharply starting in Q4 2025, and WBD's bargaining leverage on cable affiliate renewals is now diminished.
The analysts were particularly worried about the impact on the Max streaming service. They had envisioned Max as a comprehensive service capable of competing with the likes of Netflix, Amazon Prime, and Disney+.
However, without the NBA, the service's sports offering is significantly weakened. "Max's sports offering will now be weaker without the NBA," Macquarie emphasized.
Despite the downgrade, Macquarie acknowledged a few potential counterpoints. The stock is currently very cheap, trading below traditional media peers at 6x 2025 EV/EBITDA compared to the peer average of 8x.
Additionally, they note that WBD will save a substantial amount of money by not having to pay for the NBA rights. There is also speculation that the company might accelerate potential break-up plans, as mentioned in a recent Financial Times article.
However, the analysts remain cautious. "We evaluate stocks based primarily on operating fundamentals, which in WBD's case now look more precarious in the longer term," they concluded.
They also noted the possibility of litigation regarding the NBA's decision but suggested that this would only extend the uncertainty and is unlikely to have a positive impact unless a decision is overturned.