Warner Bros. Discovery (NASDAQ:WBD) has been downgraded from Outperform to Market-Perform by Bernstein, with the firm also slashing its price target from $10 to $8, citing a challenging road ahead for the company's recovery. The downgrade follows a disappointing Q2 performance where WBD missed key financial metrics, including a 6% decline in revenue, a 16% drop in EBITDA, and a 43% reduction in free cash flow year-over-year.
Bernstein analysts pointed to the company's struggles since the WarnerMedia-Discovery merger in April 2022, which has seen WBD's stock plummet nearly 70%, making it one of the worst performers in its sector. The firm expressed concern over the "secular challenges" WBD faces in its linear TV business and the company's inability to achieve necessary scale in its direct-to-consumer (DTC) segment. Additionally, the analysts noted increasing investor frustration over WBD's uncertain future, particularly given its declining EBITDA and elevated leverage ratio of 4x.
The potential loss of NBA broadcasting rights, a key component of TNT's programming for decades, was also highlighted as a significant risk that could further compound WBD's difficulties.