Should You Hold on to WBD Stock Despite its 5% Dip in YTD?

Warner Bros. Discovery WBD shares have lost 5% year to date, significantly underperforming the Zacks Consumer Discretionary sector’s 25.1% growth and entertainment peers like Disney DIS, Paramount Global PARA and Netflix’s NFLX return of 0.6%, 16.4% and 32.9%, respectively. This underperformance reflects investor concerns about the company's transformation amid a challenging media landscape, despite notable operational improvements in the first quarter of 2025.

Streaming Segment Shows Promise

WBD's streaming business delivered encouraging results in the first quarter, adding 5.3 million subscribers to reach 122.3 million globally. The segment generated $339 million in adjusted EBITDA, positioning the company firmly on track to achieve at least $1.3 billion in streaming EBITDA for 2025. Max's content strategy continues resonating with audiences, evidenced by The White Lotus season three averaging more than 25 million global viewers per episode and The Pitt's successful debut with 12 million worldwide viewers across 15 episodes. Recent announcements highlight continued momentum, with The Last of Us attracting more than 90 million global viewers since season one concluded.

Mixed Operational Performance

The Studios segment showed resilience despite a lighter theatrical slate, with first-quarter adjusted EBITDA increasing 63% year over year to $259 million. A Minecraft Movie's success, grossing nearly $900 million globally, and Sinners' strong commercial and critical reception demonstrate the studio's content capabilities. However, the Global Linear Networks segment continues facing headwinds, with revenues declining 6% year over year due to continued cord-cutting pressures and domestic advertising challenges.

Warner Bros. Discovery, Inc. Price and Consensus

Warner Bros. Discovery, Inc. price-consensus-chart | Warner Bros. Discovery, Inc. Quote

Content Pipeline Strength

WBD's robust content pipeline supports medium-term growth prospects. The highly anticipated Superman film will arrive on July 11, following strong trailer reception with more than 250 million views. Warner Bros. Television secured multiple renewals and new orders, including The Pitt season two and continued success with Abbott Elementary and The Voice. The upcoming Harry Potter series, scheduled for early 2027, represents a significant franchise opportunity for Max's subscriber growth.

Recent product launches, including the Extra Member Add-On feature and Profile Transfer capabilities for Max, address password sharing while providing revenue upside. The WBD Storyverse advertising initiative and new solutions like NEO and DemoDirect aim to enhance advertiser value propositions amid challenging linear advertising markets.

Financial Position Considerations

The company maintained its 3.8x net leverage ratio while repaying $2.2 billion in debt during the first quarter. With $4.0 billion cash on hand and $38.0 billion gross debt, WBD continues targeting 2.5-3x gross leverage. Free cash flow of $302 million in the first quarter, typically the seasonally weakest quarter, demonstrates improving cash generation capabilities. However, the elevated debt burden remains a concern for investors seeking growth acceleration.

Investment Recommendation

WBD merits a Hold rating despite the YTD decline. While streaming momentum and content quality improvements are encouraging, the company faces continued linear television headwinds and elevated leverage constraints. The stock's underperformance creates potential value opportunities, but investors should await clearer evidence of sustainable streaming profitability growth and debt reduction progress. 

The Zacks Consensus Estimate for WBD’s 2025 revenues is pegged at $37.8 billion, indicating a decline of 3.88% on a year-over-year basis. The consensus mark is pegged at a loss of 16 cents per share, narrower than the loss of $4.62 in the year-ago period.

See the Zacks Earnings Calendar to stay ahead of market-making news.

Current shareholders should maintain positions, while prospective investors might consider waiting for a more attractive entry point below current levels before initiating positions. WBD carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research