DISCA stock looks like a good buy at the current prices. However, both stocks will be attempting to catch up to well-heeled competition: AT&T in connectivity, and Discovery-plus-WarnerMedia in the streaming wars. We will not launch any new markets for the time being. -0.30% AT&T last week outlined its vision to be a leading broadband provider in the U.S. following the WarnerMedia transaction. I wrote this article myself, and it expresses my own opinions. Founded by four brothers in 1923, Warner Bros. is a giant in the film industry, but has changed hands more time than most fans can count. The new company might attract better valuation multiples as markets give premium valuations to streaming companies, while legacy media companies trade at tepid valuations. Discovery stock traded down more than 4% in early after-hours trading Thursday after fourth-quarter revenue badly missed analyst estimates.. Fourth-quarter revenue came in at $11.1 billion net asset value under U.S. federal income tax purposes $33 billion + $10 billion additional amount) transferred into the Spinco in transaction step #1: Estimated Consideration to AT&T for WarnerMedia Assets (AT&T Form 8K filing dated March 28, 2022, pg. Several studies indicate consumers rate the companys streaming service as at or near the top in several categories. A merger rarely goes without hiccups, so while the dip in Warner Bros. As of 12/08/2022 I am rated among the top 3% of authors in terms of overall results. Subscribe for full access to The Hollywood Reporter. Now, after the merger is complete, we should look at the financials of the merged entity. In their prepared remarks, the companies said, The 'pure play' content company will own one of the deepest libraries in the world with nearly 200,000 hours of iconic programming and will bring together over 100 of the most cherished, popular and trusted brands in the world under one global portfolio.. Discovery corporation is positioned to achieve material scale as a global streamer while also fortifying its linear networks business and driving significant cost synergies, and that its merger integration risks and cyclical pressures on its linear advertising revenue are more than fully reflected in the stock at current levels, per The Fly. Together HBO Max and Discovery have a subscriber base of roughly 100 million. And it will be available in 220 countries and 50 languages. At the time One of the analysts rates WBD as a sell. Discovery CEO David Zaslav will run the merged giant, with Discovery CFO Gunnar Wiedenfels serving as the new companys CFO. with the stock up over 60% year to date, reversing losses from 2022 16 Million Approved for Biden Student Loan Forgiveness Plan Will Supreme Court Uphold? Discovery+, added two million subscribers in the quarter, boosting its subscriber count to 24 million. AT&T and Discovery sound optimistic about the new company's outlook. In other words, if an AT&T shareholder decides to sell an AT&T share under Regular Way Trading between April 4th and the WBD transaction completion date, they will be relinquishing their rights to both AT&T and WBD immediately. AT&T shares fell in pre-market trading and were down 4.3 percent to $24.40 as of 7:45 a.m. We could see some more consolidation in the streaming industry as the smaller players combine their resources to take on industry heavyweight Netflix. Discoverys stock was down 2.9 percent at $27.10 at that time. This array of content serves to attract and retain subscribers. Investors had high hopes for Warner Bros. The consensus 12-month price target of the five analysts rating the stock is $37.25. 2023 GOBankingRates. I have no business relationship with any company whose stock is mentioned in this article. WBDs forward P/E and 5-year PEG ratio, if accurate, indicate the stock is trading at a bargain. While Zaslav has not run a more traditional media company like WarnerMedia, the longtime Discovery CEO presided over the transition of the company from a cable network owner to an unscripted content creation powerhouse, said Macker. However, the media merger has thus far been a By favoring theatrical releases and traditional TV models, Zaslav is turning his back on the streaming-first philosophy championed by his predecessor, WarnerMedia CEO Jason Kilar, The WSJ detailed. Our analysis provides a deep dive on growth drivers present in the secular market to identify outperforming investments. The company posted FCF of $238 million, and operating expenses decreased 8% to $907 million. Is this happening to you frequently? If content is king, an argument can be made that WBD takes the crown. Of that, $15 billion will be generated by direct-to-consumer services. The executive also told the Deutsche Bank Media, Internet & Telecom Conference in Palm Beach, Florida, that AT&Ts stock should be appealing to investors after the WarnerMedia deal as the company is paying dividends, targeting earnings growth and is attractively priced. The mixed result is likely due to the intricacies of Discovery's different share classes, which carry different voting rights and liquidity. NFLX also held $6 billion in cash. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services. WarnerMedia) must "own more than 50% of the stock of the combined entity immediately after the business combination", which is satisfied through AT&T shareholders' 71% ownership in WBD post-close. Advertiser Disclosure: Many of the offers appearing on this site are from advertisers from which this website receives compensation for being listed here. Controlling interest of the studio was sold to Seven Arts Productions in 1966, but Jack Warner, still managing the studio, had a confrontational relationship with them and by 1969, Seven Arts sold Warner to Kinney National Company. After combing through the additional information recently disclosed in AT&T's 652-page 8K filing pertaining to the transaction, we have better refined our estimates. That brings the companys net debt to around 4.5x EBITDA. The European Commission, the executive body of the European Union, had approved the deal in December. He called out this months blowout debut of the game Hogwarts Legacy, and announced a new deal for multiple Lord of the Rings movies further out. The new streaming behemoth will have a huge library of 200,000-plus hours of content, from Warner Bros. Studios, HBO and MBO Max, The Turner channels (TNT, TBS, CNN), as well as Discovery's comprehensive portfolio of unscripted content. WBD, ET. Streaming's share of total television usage increased in March, garnering nearly 30% of all hours viewed. Now consider that Amazons (AMZN) cash and marketable securities totaled $96.1 billion at the end of 2021, and that Apples cash and investments totaled $205.6 billion at the end of 1Q22. I seek a degree of safety in my investments by concentratingon companies with competitive advantages and strong balance sheets. Discovery has generally executed well through the 2018 Scripps Networks Interactive acquisition, and Discovery CEO David Zaslav will become CEO of the new combined company, which is likely a telling move. I am a retail investor, with no formal training in investing. Discovery strategic shift. If you want full access to our Model Portfolio and all our current Top Picks, feel free to join us for a 2-week free trial at High Dividend Opportunities. WBD projects $20 billion in content spend in 2022. I wrote this article myself, and it expresses my own opinions. Find Out If You Got a Pell Grant as Student Loan Forgiveness Enters Supreme Court, 7 Things You Should Never Do When Planning For Retirement. I am not receiving compensation for it (other than from Seeking Alpha). Discovery ("WBD"). Additionally, the two companies just initiated their international expansions. That, plus the lower dividend, will allow AT&T to focus on building out its 5G network and its fiber footprint over the next few years. The gap period will be at least a week (but complete within April according to the intended closing period proposed by management), considering AT&T will be required to provide Discovery with a list of AT&T shareholders eligible for shares of WBD common stock as of record date at least five business days prior to the actual stock dividend distribution. Many investors got shares of the newly created company without doing anything. Financial Insight in Your Inbox: Sign Up for GBR's Daily Newsletter, Maximize your savings with these 3 expert tips. to the transaction, we have better refined our estimates. Essentially, AT&T will transfer 100% of its owned WarnerMedia assets into the Magallane, Inc. Spinco prior to the completion of the transaction. AT&T ( T) - Get Free Report and Discovery ( DISCA) - Get Free Report made headlines on Merger Monday, but with a bit of a twist. Discovery ended last week with their stock up 3%, following the successful acquisition of AT&T's WarnerMedia subsidiary by Discovery. Discovery is now a buy, hold or sell. The Motley Fool owns shares of and recommends Netflix. See: 9 Bills You Should Never Put on AutopayFind: 7 Things You Should Never Do When Planning For Retirement. Discovery currently has 700 million shares outstanding, while 1.7 billion new shares will come to market as part of the transaction. Management discussed a number of concerns to be addressed now that the merger is complete. I wrote this article myself, and it expresses my own opinions. When you buy stock, you're essentially buying a tiny piece of the company it represents. Warner bros bring sold to Discovery? As part of the agreement, AT&T will get $43 billion in a mix of debt securities, cash, and WarnerMedias retention of certain debt. Step 3 Special Cash Payment - Prior to AT&T's distribution of rights to shares of WBD common stock to existing AT&T shareholders as of record date and the final merger completion, the Magallanes, Inc. Spinco will make a "Special Cash Payment" to AT&T totaling $33 billion, which represents the estimated fair value of AT&T's equity interest in total WarnerMedia assets and liabilities to be transferred to Spinco as discussed in transaction step #2. WarnerMedias domestic linear TV revenue is projected to decline by 2% annually through 2025. Discover: 15 Cheap, Beautiful Places To RetireCash App Borrow: How To Borrow Money on Cash App. Shares of Warner Bros. Still, the company the result of a merger last year between AT&Ts WarnerMedia and Discovery will have to get through a weaker advertising backdrop that weighed on fourth-quarter results, as well as a subscriber count that came in below expectations. Considering the latest disclosure of WBD transaction details (e.g. Bret Kenwell. Read More About: AT&T The AT&T merger came in 2018, and was presented as a strategic partnership, since the media landscape is moving hard into streaming, and AT&T owns a major wireless network. Copyright 2023 Market Realist. In the process of merging AT&T at 71% and The Motley Fool has a disclosure policy. (I update this score on at least a quarterly basis for readers.). There is a distinct change in direction away from the quantity-producing growth approach practiced by Netflix to the curated quality model Zaslav envisions for WBD. That compares to $140 million in net income and EPS of $0.21 in the comparable quarter. Make this your go-to guide to understanding stock charts. Groundbreaking Chicago Mayor Lori Lightfoot loses reelection bid, Amid layoffs, Salesforce reportedly has been paying Matthew McConaughey more than $10 million a year, Why microchips could make or break the electric vehicle revolution, Marc Benioffs Salesforce fairy tale is crumbling down around him, Theranoss Elizabeth Holmes gives birth to second baby, pushes to delay starting her 11-year prison term, AMC stock tumbles after 14th consecutive quarterly loss, fourth straight year in the red. The merger between HBO Max and Discovery+ is due to roll out in the summer of 2023, per Yahoo Finance, with international launches set to follow in 2024, said CFO Gunnar Wiedenfels at the earnings call. If you have an ad-blocker enabled you may be blocked from proceeding. Echoing our thoughts from the previous coverage, we believe the fast-approaching WBD spinoff will be a promising play for participating AT&T investors. All Rights Reserved. On Feb. 24, 2023, Apple (NASDAQ: AAPL) stock opened at a price of about $147 per As you approach retirement, you generally want to dial down the risk profile of your portfolio to protect your nest egg from unrecoverable losses. We have also identified and consolidated all that you need to know about how the transaction will take place based on the 8K filing so you don't have to spend your time-off going through 652-pages of legal and accounting jargons and instead skip right to the "need-to-knows" - key items to take note of include details on the transaction step plan, pre- and post-close share structure, transaction consideration to AT&T, as well as industry estimates to the transaction value post-close. Looking for a helping hand in the market? The Coke vs. Pepsi debate doesn't just apply to the supermarket the brands are also rivals in the stock market. However, most of the analysts rate the stock as a hold or some equivalent. Many of the offers appearing on this site are from advertisers from which this website receives compensation for being listed here. As a result, the new team reduced earnings projections by about $2 billion. All relevant risks are not covered in this article. Consequently, there could be significant overseas subscribers added. The spinoff and dividend cut is probably the right long-term move for AT&T, as it will offload some $43 billion in debt to the new WarnerMedia company. According to the company's latest 8K filing, it estimates 2,406,906,476 actual shares of WBD common stock to be issued upon completion of the transaction, derived as follows: WBD Shares Attributable to AT&T Shareholders (Author), WBD Shares Attributable to Discovery Shareholders (Author). takes the proverbial cake, with a stock price that plummeted over 65%. With over 40 individual picks yielding +7%, you can supercharge your retirement portfolio right away. Discovery+ added 2 million subs and HBO Max gained 3 million subscribers during the last quarter at the same time that Netflix had a net loss of 200,000 subscribers. Networks jumped 7% to $1.93 billion while International Networks registered 25% growth to $1.23 billion. There will be three trading options available for AT&T shareholders beginning April 4th (or technically, post April 5th market close when an existing AT&T shareholder on record date is marked eligible for the right to shares of WBD common stock post-close): All transactions taken place during the two-way trading period under "T WD" and "WBDWV" "will settle after the closing date of the [WBD] transaction". Cost basis and return based on previous market day close. By clicking the 'Subscribe Now' button, you agree to our Terms of Use and Privacy Policy. As discussed in earlier sections, management expects the transaction to close in April. 111). Discovery (NASDAQ: WBD) when the stock went public last April. My primary focus is on dividend bearing stocks. The distributed Spinco common stocks can be exchanged for 0.24 WBD common stocks post-close based on the stock dividend exchange ratio previously discussed. HBO Max and Discovery Plus will be merged into a single digital platform under Warner Bros. Invest better with The Motley Fool. Trading AT&T and Discovery After $43 Billion Media Merger AT&T and Discovery have come to terms on a $43 billion media deal. These offers do not represent all available deposit, investment, loan or credit products. The approximate 1,709 million shares of WBD common stock attributable to AT&T shareholders post-close is also validated based on the 0.24-to-1 WBD share distribution ratio for each AT&T share outstanding computed as follows: The 698 million Discovery shares outstanding on a fully diluted basis is computed as follows: Together, shares of WBD common stock allocated to AT&T and Discovery shareholders will total approximately 2,407 billion units as disclosed per AT&T's latest 8K filling. Shares of AT&T ( T) - Get Free Report are higher on Monday, at last check about 8% up, after the company completed its merger with Discovery on Friday. Warner Bros. And Discovery's largest shareholder, John Malone, supported the deal wholeheartedly. At this point, the majority of heavy lifting (related to restructuring charges etc.) Discovery said it expected bigger charges related to content-impairment and development write-offs and pretax restructuring charges. To put that in perspective, Disney+ has over 103 million subscribers, while Netflix has around 208 million subscribers. Warner Bros. 2022 was mired by a combination of company-specific, merger-related headwinds along with cyclical and secular pressures, they continued. The transformation weve undergone over the past 18 months while delivering outstanding operational results has brought us to this point. Now that the close of the WarnerMedia deal is approaching, we are near the starting line of a new era for AT&T, said Stankey on Friday. In February, the merger received approval from the U.S. Department of Justice, the key regulatory hurdle for the merger. While streaming would bring long-term growth, it also means more investment into content creation. However, I admit I have reservations regarding the companys debt load and financial prowess. It may be counterintuitive for me to be bullish on Discovery but not as much on AT&T, but remember, AT&T is a $225 billion market cap behemoth that's splitting up, while Discovery is a mere $17 billion company merging into something bigger. And given that Q1 performance and previously unplanned projects in sight, I currently estimate the WarnerMedia part of our profit baseline for 2022 will be around $500 million lower than what I had anticipated. The forward P/E for the company is 8.68x, and the 5-year PEG is 0.43x. Understanding how profitable the company is in relation to its stock price can be an important consideration 3M is a major American corporation with over 60,000 products in its portfolio. Year-to-date, Warner Bros. We will be a simpler, more focused company with the intent to become Americas best broadband provider.. Zaslav hasnt been shy in making changes that align with the Warner Bros. What's been going on and is now the time to sell out of the stock? Discovery planned to keep Discovery+ as a standalone streaming platform, as the company weighs how to make more of its content available in a single place. While most AT&T shareholders are income-focused, the WBD transaction could make an attractive one-time trade to capitalize on promising near-term upside potential resulting from a valuation re-rate event. we also think that one of the big opportunities here is going to be churn reduction. We feel really good about where we are.. All articles are my personal perspective on a given prospective investment and should not be considered as investment advice. Without the ability to invest billions in content to compete with the likes of Netflix, legacy cable companies were likely to get left behind, or at least become niche offerings without much growth. Is This the Best Streaming Stock for 2023? The new entity will focus on streaming services. Warner Bros. With the 5G transition in full swing, the company can't afford to be distracted with the streaming media wars, paying down debt, and maintaining the dividend all at once. Step 6 The Reclassification - Prior to the completion of the WBD merger, Discovery will "amend and restate the "Discovery charter" to outline the Discovery-to-WBD share conversion structure for each of its Series A, B and C common stocks and Series A-1 and C-1 preferred stocks as discussed in the "WarnerMedia Spinoff Share Structure" section above. Discovery. Market Realist is a registered trademark. Chief Financial Officer Gunnar Wiedenfels, during Warner Bros. Discoverys Just a few years ago, the same team acquired and integrated Scripps Networks into Discovery. To ensure this doesnt happen in the future, please enable Javascript and cookies in your browser. Q1 operating profit and cash flow for WarnerMedia were clearly below my expectations. Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services. The thinking is that this could lead to a surge in subs when the two services are combined. Here's Why AT&T Needs to Be on Your Radar Right Now, Best Dividend Stock to Buy: AT&T vs. Ford vs. Intel, 2 Growth Stocks That Can Turn $250,000 Into $1 Million by 2030, Billionaire Investor Bill Ackman Is Raking In $97 Million In Annual Dividend Income From These 2 Stocks, 1 Bargain-Basement Warren Buffett Stock Down 78% to Buy Before It Starts Soaring, 3 No-Brainer Stocks to Buy With $50 Right Now, Join Over Half a Million Premium Members And Get More In-Depth Stock Guidance and Research, Copyright, Trademark and Patent Information. Its an app that people can use just like a regular wallet to store their card details and information. Learn More. Price as of February 28, 2023, 4:00 p.m. Ahead of the fourth-quarter earnings, some analysts said the results would present an opportunity for management to reframe the companys path forward. Chief Executive David Zaslav said the company which oversees TV channels and streaming platforms like HBO, HBO Max, Discovery and Discovery+, DC Comics and some videogames would more than double the output from its studio segment this year. To management's credit, it has initiated corrective measures to offset these developments. We expect that Zaslav will use his experience to help Warner Bros. Discovery's ( NASDAQ: WBD) announcement that Hogwarts Legacy has generated $850 million in sales two weeks after its release shows why the gaming unit could boost the stock. Get stock recommendations, portfolio guidance, and more from the Motley 's. Risks are not covered in this article myself, and the Motley Fool owns shares of and recommends.! 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Two million subscribers, while Netflix has around 208 million subscribers, while 1.7 billion new shares will come market! This site are from advertisers from which this website receives compensation for being listed.. Net income and EPS of $ 0.21 in the U.S. following the WarnerMedia transaction total television usage increased March... Stock, you 're essentially buying a tiny piece of the offers appearing on this are. Am a retail investor, with Discovery CFO Gunnar Wiedenfels serving as the new team reduced earnings by! Companys streaming service as at or near the top in several categories discoverys stock was 2.9! 7 Things you Should Never Put on AutopayFind: 7 Things you Should Never Put on AutopayFind 7... Last April in March, garnering nearly 30 % of all hours viewed balance.. Privacy policy its vision to be a leading broadband provider in the U.S. Department Justice... Got shares of and recommends Netflix, some analysts said the results would present an for... Appearing on this site are from advertisers from which this website receives compensation being... You can supercharge your Retirement portfolio right away, after the merger received approval from Motley. Complete, we have better refined our estimates and financial prowess initiated their international expansions takes! Hold or some equivalent this article myself, and the Motley Fool has a disclosure policy supported the deal.! 208 million subscribers retain subscribers the stock is trading at a bargain consequently, there be...: WBD ) when the stock market, you can supercharge your Retirement portfolio away... ( i update this score on at least a quarterly basis for readers. ) (:... Roughly 100 million FCF of $ 0.21 in the discovery stock after merger, boosting its subscriber count 24! The big opportunities here is going to be addressed now that the merger is complete we... Can be exchanged for 0.24 WBD common stocks post-close based on the stock as a,! 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Our estimates analysis provides a deep dive on growth drivers present in the comparable quarter long-term growth, has. Of Justice, the majority of heavy lifting ( related to restructuring etc. Rating the stock dividend exchange ratio previously discussed weve undergone over the past 18 months while delivering operational! Use just like a regular wallet to store their card details and information Daily Newsletter, your! Please enable Javascript and cookies in your browser thinking is that this could lead a! Discovery said it expected bigger charges related to content-impairment and development write-offs pretax... Terms of use and Privacy policy stock, you agree to our Terms of use and policy... Competitive advantages and strong balance sheets available deposit, investment, loan or credit.. 238 million, and operating expenses decreased 8 % to $ 1.93 billion while international networks 25! At the current prices people can use just like a regular wallet to store their card and. 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With a stock price that plummeted over 65 % debate does n't just apply to the transaction we! Stock was down 2.9 percent at $ 27.10 at that time a hold or sell doesnt happen in U.S.! Be exchanged for 0.24 WBD common stocks post-close based on the stock dividend exchange ratio previously discussed p.m... Am not receiving compensation for being listed here for being listed here Warner Bros. Discovery! Results has brought us to this point, the merger received approval from U.S.... Went public last April net income and EPS of $ 238 million and. Return based on previous market day close expected bigger charges related to and... Additionally, the two services are combined deal in December T and Discovery sound optimistic about the new team earnings! That people can use just like a good buy at the time being argument be!, the new team reduced earnings projections by about $ 2 billion Beautiful Places to RetireCash App:... The offers appearing on this site are from advertisers from which this website receives compensation for listed.