The “Bobs” from the movie Workplace Area
Supply: twentieth Century Fox | YouTube
Listening to Warner Bros. Discovery Chief Govt Officer David Zaslav converse on Friday’s fourth-quarter earnings calls, I could not assist however consider a scene within the film “Workplace Area.”
An worker named Tom meets with two consultants, each named Bob (collectively, The Bobs), who’ve been tasked with deciding which staff on the firm ought to 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 individuals expertise! I’m good at coping with individuals! Cannot you perceive that?! WHAT THE HELL IS WRONG WITH YOU PEOPLE?!”
Warner Bros. Discovery traders are The Bobs, Chief Govt Officer David Zaslav is Tom and the disconnect he is labored up about is free money stream.
Warner Bros. Discovery on Friday mentioned it generated $3.3 billion in free money stream through the fourth quarter and ended the 12 months with $6.2 billion in free money stream, 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 instructed the funding group that his precedence is to spice up free money stream 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 stable footing and on a pathway to progress, and we have finished that,” Zaslav mentioned. “We mentioned we would be lower than four-times levered, and we’re. We’re now at 3.9 occasions and count on to proceed to delever in 2024. We have considerably enhanced the effectivity of the group with an extended runway nonetheless to go. We mentioned we have been going to generate significant free money stream. … 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 stream technology.
So, why did the shares stoop Friday, down now 45% up to now 12 months?
Maybe traders did not like the corporate’s wishy-washy reply on free money stream technology in 2024, fearing the constructive momentum there might 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.
But it surely’s extra probably, given the inventory’s constant underperformance up to now 12 months, that traders merely do not care about free money stream in the way in which Zaslav desires them to. (Keep 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 progress, from which Netflix tried to redirect.)
Legacy media wants a progress narrative. It is wanted one for the previous 12 months. Reducing spending, trashing movies, licensing programming to Netflix, shedding staff, saving cash due to strikes — these aren’t progress 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 progress can start. But it surely’s unclear the place that progress will happen. Boosting free money stream and paying down debt might make Zaslav richer, however they don’t seem to be clear catalysts for a number of enlargement for an organization saddled with slowly dying cable networks and related declining promoting income.
Simply because Zaslav desires traders to concentrate on free money stream as a substitute 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 individuals particular person does not make him a individuals particular person, regardless of what number of occasions, or how loudly, he repeats it.
WATCH: Buyers are shocked by Warner Bros. Discovery’s lack of full-year steerage
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