Warner Bros. Discovery Stock Soars on Potential Breakup Speculation

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Warner Bros. Discovery (WBD) shareholders saw a welcome surge in their holdings on Tuesday, with the stock price jumping over 6%. This positive movement came after Bank of America (BofA) Global Research issued a report suggesting the company explore strategic options, including a potential sale or spin-off, to unlock greater value for investors.

Warner Bros. Discovery, formed in 2022 through the merger of Discovery and AT&T’s Warner Media division, has faced significant challenges. A subdued advertising market in the U.S. and some international territories has hampered its revenue stream. Additionally, the fallout from Hollywood strikes last year negatively impacted the company’s studio segment.

BofA’s report proposes that Warner Bros. Discovery could explore a scenario where its direct-to-consumer (DTC) arm, which includes popular streaming services like HBO Max, and its studio assets are separated from the rest of the company and operate as a standalone entity. While this move could negatively affect Warner Bros. Discovery’s debt profile, BofA suggests it could significantly increase the value of its equity holdings.

The report further explores other possibilities, including an outright sale of the entire company or a merger of its streaming services with another major player in the streaming market, potentially resulting in a co-ownership structure.

Since the Warner Media and Discovery merger in 2022, Warner Bros. Discovery’s stock price has witnessed a dramatic decline of nearly 70%. This significant drop reflects the challenges the company has faced and the broader market saturation fears plaguing the media industry. In a bid to attract customers hesitant to subscribe to numerous individual services, media companies have been forced to bundle their streaming offerings and incentivize subscriptions with discounted rates.

While Warner Bros. Discovery did not respond immediately to a request for comment from Reuters, BofA’s report acknowledges that some initial financial projections for the merger haven’t materialized as expected. However, the analysts remain optimistic, highlighting the company’s ownership of “best-in-class” assets with substantial unrealized value.

Adding to the existing concerns for investors is the potential loss of broadcasting rights for the National Basketball Association (NBA) in the next round of negotiations with distributors, according to recent media reports. This loss could further complicate Warner Bros. Discovery’s role in the newly formed sports-streaming partnership with industry giants Disney and Fox.

The coming days and weeks will be crucial for Warner Bros. Discovery as investors closely monitor the company’s response to BofA’s suggestions and any developments regarding the NBA broadcasting rights.