The “Bobs” from the movie Workplace House
Supply: twentieth Century Fox | YouTube
Listening to Warner Bros. Discovery Chief Government Officer David Zaslav converse on Friday’s fourth-quarter earnings calls, I could not assist however consider a scene within the film “Workplace House.”
An worker named Tom meets with two consultants, each named Bob (collectively, The Bobs), who’ve been tasked with deciding which workers on the firm must be promoted or fired.
When The Bobs press Tom on what he does on the firm after they do not initially perceive, Tom snaps, screaming, “I’ve folks expertise! I’m good at coping with folks! Cannot you perceive that?! WHAT THE HELL IS WRONG WITH YOU PEOPLE?!”
Warner Bros. Discovery traders are The Bobs, Chief Government Officer David Zaslav is Tom and the disconnect he is labored up about is free money circulation.
Warner Bros. Discovery on Friday stated it generated $3.3 billion in free money circulation throughout the fourth quarter and ended the 12 months with $6.2 billion in free money circulation, up 86% from a 12 months prior. But it missed analyst estimates for income and revenue, and its shares fell 10%.
For greater than 12 months, Zaslav has repeatedly advised the funding neighborhood that his precedence is to spice up free money circulation to enhance the well being of the corporate and to pay down debt. Warner Bros. Discovery has paid down $12.4 billion in debt in lower than two years since saying the merger of Discovery and WarnerMedia.
He led with that message once more on Friday throughout his firm’s earnings convention name.
“Our high precedence this 12 months was to get this firm on strong footing and on a pathway to development, and we have performed that,” Zaslav stated. “We stated we might be lower than four-times levered, and we’re. We’re now at 3.9 instances and anticipate to proceed to delever in 2024. We have considerably enhanced the effectivity of the group with an extended runway nonetheless to go. We stated we had been going to generate significant free money circulation. … And we have exceeded our aim with $6.2 billion for the 12 months.”
David Zaslav attends the world premiere of “The Flash”, in Hollywood, Los Angeles, California, U.S., June 12, 2023.
Mike Blake | Reuters
Warner Bros. Discovery’s board of administrators has been so intent on boosting money that it final 12 months modified Zaslav’s compensation to tie his bonus to money circulation era.
So, why did the shares hunch Friday, down now 45% prior to now 12 months?
Maybe traders did not like the corporate’s wishy-washy reply on free money circulation era in 2024, fearing the constructive momentum there could possibly be short-lived.
CFO Gunnar Wiedenfels refused to offer steerage, citing the corporate’s unknown earnings efficiency with the vicissitudes of the promoting market and elevated content material spend on Max now that strikes by Hollywood writers and actors are over.
However it’s extra seemingly, given the inventory’s constant underperformance prior to now 12 months, that traders merely do not care about free money circulation in the way in which Zaslav desires them to. (Bear in mind, that Netflix pretty just lately tried, and failed, to refocus investor sentiment onto its most well-liked metrics. Shares solely began rising when Netflix returned to subscriber development, from which Netflix tried to redirect.)
Legacy media wants a development narrative. It is wanted one for the previous 12 months. Slicing spending, trashing movies, licensing programming to Netflix, shedding workers, saving cash due to strikes — these aren’t development tales.
If earnings and income miss estimates, and if the corporate is not including tens of tens of millions Max subscribers, there’s not all that a lot for shareholders to get enthusiastic about.
Zaslav’s argument is his firm’s stability sheet should be in good condition earlier than development can start. However it’s unclear the place that development will happen. Boosting free money circulation and paying down debt might make Zaslav richer, however they don’t seem to be clear catalysts for a number of growth for an organization saddled with slowly dying cable networks and related declining promoting income.
Simply because Zaslav desires traders to give attention to free money circulation as an alternative of metrics like streaming service subscriber additions, revenue and income does not imply they’re going to hear.
Simply because a employee says he is a folks individual would not make him a folks individual, regardless of what number of instances, or how loudly, he repeats it.
WATCH: Buyers are shocked by Warner Bros. Discovery’s lack of full-year steerage
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