Core Thesis - Warner Bros. Discovery (WBD) has seen its stock price rise to approximately $24 per share, reflecting a 122% increase year-to-date, driven by streaming profitability, cost reductions, and confidence in a corporate split [2][4] - The stock's current valuation at 1.56× price-to-sales is unusually high, suggesting that any decline in revenue could lead to a significant drop in stock price [4][5] - A conservative revenue estimate could bring the stock price back to the mid-teens, indicating that a stabilization of revenue expectations could lead to a 30-40% decline in stock value [6] Key Bearish Drivers - The linear TV sector is experiencing mid-single-digit contraction, which poses a structural challenge to WBD's EBITDA [9] - High levels of debt mean that even minor declines in cash flow could disproportionately impact equity value, raising refinancing risks [9] - Uncertainty in streaming margins due to high content expenses and competition could deflate current valuations [9] - Execution risks related to the corporate split could lead to lower market multiples for the networks unit, affecting overall equity value [9] - The performance of hit-driven content is critical; any missteps could drastically alter market sentiment [9] Bullish Offsets - The film slate is improving, and early indicators suggest that DC's repositioning could restore franchise momentum [8] - Max is stabilizing internationally, with new revenue pathways from bundling and ad-supported tiers [8] - Cost savings and merger synergies are contributing to EBITDA improvements, and the corporate separation could unlock higher valuations for the streaming unit [8] Conclusion - WBD's stock has shown impressive growth, reflecting renewed confidence in its business model and cost management [10] - However, the stock's recent rally leaves limited room for error, and various risks could lead to a significant price correction if not managed effectively [10]

Core Thesis - Warner Bros. Discovery, Inc. (WBD) has reported its first positive net result in Q2 2025 after a challenging restructuring period post-2022 merger, with a significant corporate split planned by mid-2026 to unlock value [2][3][4] Financial Performance - WBD's share price was $16.17 as of September 11th, with trailing and forward P/E ratios of 52.16 and 39.06 respectively [1] - Q2 results showed strong performance in the Streaming & Studios segment, with 3.4 million net subscriber additions, reaching nearly 126 million subscribers, generating $3.8 billion in revenue and $863 million in EBITDA [3] - Linear Networks experienced a 9% revenue decline to $4.8 billion, with EBITDA falling 24% due to increasing cord-cutting trends [4] - Despite a GAAP profit of $1.6 billion, free cash flow decreased to $702 million, impacted by taxes, interest, and separation costs [4] Corporate Strategy - The upcoming split will create two distinct entities: Warner Bros. "Streaming & Studios" and Discovery Global, aimed at isolating high-growth assets from declining linear TV operations [2][3] - The split is structured to be tax-free, with Discovery Global retaining a 20% stake in Warner Bros. for debt reduction purposes [3] - Strategic partnerships, such as HBO Max's deal in Southeast Asia, highlight WBD's focus on global expansion [3] Market Positioning - The separation is expected to provide clearer valuation comparisons, positioning Warner Bros. alongside competitors like Netflix and Disney, while Discovery Global will be compared to Fox, AMC, and Comcast [4] - The sum-of-the-parts valuation approach may lead to significant rerating of WBD as the market begins to value its high-growth and legacy businesses separately [4] Historical Context - The stock price of WBD has appreciated approximately 45% since previous bullish coverage in February 2025, which emphasized the company's debt burden and potential divestiture of linear assets to enhance streaming growth [5]