Let me take you back a few years—because my relationship with Warner Bros. Discovery (ticker: WBD) didn’t start with the company in its current form. I first bought into the business when it was still known as Discovery Inc., around 2021. At the time, I was intrigued by the company’s lean operating model, its solid grip on nonfiction content, and what I perceived to be a strong, differentiated niche in the media space—particularly compared to the more capital-intensive streaming players like Netflix.
Then came 2022, a pivotal and ultimately painful turning point. That’s when Discovery completed its much-discussed merger with WarnerMedia, a bold and highly leveraged move that turned Discovery into the media behemoth now known as Warner Bros. Discovery. I’ll be honest: the execution of this merger was nothing short of a train wreck. The integration was messy, the debt levels ballooned, and investor sentiment turned cold fast. I ended up taking a 27% loss on my position and exited in August 2022. Since then, I haven’t revisited the stock—until now.
A Familiar Situation with a New Twist
As of today, Warner Bros. Discovery trades at $10.51 per share, and just as things were starting to stabilize, the company announced another radical strategic move: they plan to split into two separate companies.
Yes, you read that right. Just a few years after the merger that created this new conglomerate, they’re now going in the exact opposite direction—breaking it apart. On the surface, it seems like a bit of corporate déjà vu, and honestly, I found the timing rather ironic. But irony aside, I wanted to take a fresh look at the company—evaluate this new strategy, assess whether there’s long-term value in the restructuring, and determine if WBD is worth re-entering at current levels.
The Proposed Breakup: What’s Actually Happening?
The plan is to split Warner Bros. Discovery into two publicly traded companies by early 2026:
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Streaming and Studios – This would encompass HBO (now simply branded as Max), the Warner Bros. film studio, and other production assets. Think premium IP, blockbuster franchises, and subscription-based video content.
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Linear Networks – This would be the legacy cable TV business, including Turner Networks, CNN, and Discovery-branded channels like TLC, HGTV, and Animal Planet.
At first glance, this structure makes a lot of sense. You’re separating a growth-oriented digital streaming platform from a slowly dying traditional media model. In theory, this should allow each business to pursue its own strategic agenda, unlock capital market efficiencies, and attract more specialized investors. Streaming can command a higher valuation multiple, while the networks business can focus on managing its cash flows and legacy contracts.
But here’s the thing: while the structure makes sense, the execution and timing raise serious red flags.
A Deep Dive into the Financials
Let’s look at each business in more detail—because this isn’t just about a corporate split; it’s about where the growth is, where the pain is, and how capital is being deployed.
Streaming & Studios: The Bright Spot
Streaming has been the company’s most encouraging segment in recent quarters. Revenue from the streaming division grew 8% year-over-year, while adjusted EBITDA jumped dramatically—from $86 million to $339 million. That’s a massive margin expansion and a sign that WBD is finally finding some operating leverage in its content-driven streaming model.
On the subscriber side, the company added 6.4 million global streaming subscribers last quarter, bringing the total to roughly 116 million. Management believes this number could hit 150 million by the end of 2026, with new market entries planned in the UK, Ireland, Germany, and Italy. That’s ambitious—but not entirely unrealistic given HBO’s strong brand equity.
What’s less encouraging is ARPU—average revenue per user. That metric declined from $8 to about $7.10, suggesting that WBD is trading margin for scale. In other words, they’re focusing on subscriber growth now, with the hope of monetization later. That’s not an inherently bad strategy, but ideally, we’d want to see both subscriber counts and ARPU rising in tandem.
Declining Revenue
The studio division saw an 18% decline in revenue year-over-year. While some of that was expected given the cyclical nature of film releases and the industry-wide slowdown due to strikes and shifting consumer habits, it does raise questions about how reliably profitable the segment can be—especially when bundled with an aggressive streaming push.
That said, studio EBITDA did improve modestly, signaling some operational efficiency gains, though not enough to offset topline pressure.
Linear Networks: The Albatross
The biggest drag is clearly the global linear network business—a legacy segment built on cable and traditional TV, which continues to decline as viewers shift to digital platforms.
Revenue dropped 7%, and EBITDA was down a whopping 15%. The writing’s on the wall here. Without sports, the entire linear ecosystem might already be obsolete. The only real value left in this division is its cash flow, and even that is in decline. Splitting this division off might allow the streaming business to be more fairly valued, but it also opens up a host of financing issues—which brings me to my biggest concern.
The Debt Problem: Timing Couldn’t Be Worse
Warner Bros. Discovery still carries $34 billion in net debt. While they’ve paid down nearly $19 billion since the merger, it’s not enough to make this split financially seamless.
To make matters worse, S&P Global downgraded WBD to junk bond status just last month. That changes everything. Being in junk territory makes refinancing debt not just harder—but significantly more expensive.
Currently, the company’s average interest rate is in the range of 4% to 5%. But if they try to refinance that debt today, they’re likely looking at 7% to 8% interest rates, especially given the riskier nature of splitting the business in two.
According to the CFO, the bulk of this debt will remain with the linear networks business, with a “smaller but not insignificant” portion staying with streaming and studios. That means both entities will be burdened with costly debt right out of the gate.
This is where the timing really becomes problematic. In a high-rate environment, with credit markets tight and investor appetite for risky media assets limited, why rush into a breakup that could saddle both new companies with higher financing costs?
Valuation: Attractive on the Surface, Risky Underneath
From a traditional valuation perspective, WBD looks cheap:
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Price-to-Free Cash Flow: ~5x, which is extremely low for a media company with a massive IP library and growing streaming platform.
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EV-to-FCF: Around 12x, still reasonable once debt is factored in.
So yes, this stock looks deeply undervalued, especially compared to pure streaming peers like Netflix. But this isn’t just a streaming company. This is a complex, debt-heavy, restructuring-in-progress conglomerate.
If they succeed in growing streaming to 150 million subscribers and can eventually lift ARPU, there's definitely upside. But until that happens, the overhang of debt and the uncertainty of the split create more risk than reward—at least for now.
Strategy: Sit on the Sidelines for Now
I don’t currently own shares of WBD, and honestly, I’m not rushing to change that. If you’re an existing shareholder, you’re likely underwater. At this point, you’ll have to decide whether to ride out the restructuring or cut losses.
As for me, if I were at break-even, I’d probably take profits and sit this one out.
Why? Because corporate breakups almost always result in near-term volatility. When two companies are spun off, institutional holders often dump one or both entities, especially if the split creates an imbalance in index inclusion or portfolio strategy.
My plan is to wait for the breakup to complete and then assess each company independently. I’d be much more interested in owning the streaming and studio business, given its growth potential and premium content slate. The legacy cable networks business? Not so much. That division will likely remain cash-flow positive for a while, but it’s clearly in structural decline.
Conclusion: A Cautionary Opportunity
Warner Bros. Discovery is a fascinating case study in media strategy, corporate finance, and investor psychology. It’s a company with world-class content, a growing streaming platform, and a deeply discounted stock price. But it also has massive debt, poor timing, and a questionable path forward.
I agree with the strategic rationale behind the upcoming breakup—but I fundamentally disagree with the timing. In a more favorable interest rate environment, this could have been a powerful move. Today, it feels like a high-risk gamble that could destroy shareholder value before it creates any.
So for now, I’ll be watching from the sidelines. If you’re already in the name, weigh your exposure carefully. If you’re considering an entry, think about waiting until the dust settles post-split—when we can judge the businesses on their individual merits, free from the legacy baggage and financial engineering.
Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.
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