Warner Bros. Discovery hypes free money circulation. Traders do not buy it

Listening to Warner Bros. Discovery Chief Government Officer David Zaslav converse on Friday’s fourth-quarter earnings calls, I could not assist however consider a scene within the film “Office Space.”

An worker named Tom meets with two consultants, each named Bob (collectively, The Bobs), who’ve been tasked with deciding which workers 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 have people skills! I am good at dealing with people! Can’t you understand that?! WHAT THE HELL IS WRONG WITH YOU PEOPLE?!”

Warner Bros. Discovery traders are The Bobs, Chief Government Officer David Zaslav is Tom and the disconnect he is labored up about is free money circulation.

Warner Bros. Discovery on Friday stated it generated $3.3 billion in free money circulation throughout the fourth quarter and ended the 12 months with $6.2 billion in free money circulation, up 86% from a 12 months prior. But it missed analyst estimates for revenue and profit, and its shares fell 10%.

For greater than 12 months, Zaslav has repeatedly told the investment community that his precedence is to spice up free money circulation 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 asserting the merger of Discovery and WarnerMedia.

He led with that message once more on Friday throughout his firm’s earnings convention name.

“Our top priority this year was to get this company on solid footing and on a pathway to growth, and we’ve done that,” Zaslav stated. “We said we’d be less than four-times levered, and we are. We’re now at 3.9 times and expect to continue to delever in 2024. We’ve significantly enhanced the efficiency of the organization with a long runway still to go. We said we were going to generate meaningful free cash flow. … And we’ve exceeded our goal with $6.2 billion for the year.”

Warner Bros. Discovery’s board of administrators has been so intent on boosting money that it last year changed Zaslav’s compensation to tie his bonus to money circulation technology.

So, why did the shares hunch Friday, down now 45% prior to now 12 months?

Maybe traders did not like the corporate’s wishy-washy reply on free money circulation technology in 2024, fearing the optimistic momentum there might be short-lived.

CFO Gunnar Wiedenfels refused to give guidance, 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.

Nevertheless it’s extra possible, given the inventory’s constant underperformance prior to now 12 months, that traders merely do not care about free money circulation in the way in which Zaslav needs them to. (Keep in mind, that Netflix pretty lately tried, and failed, to refocus investor sentiment onto its most popular metrics. Shares solely began rising when Netflix returned to subscriber development, from which Netflix tried to redirect.)

Legacy media needs a growth narrative. It is wanted one for the previous 12 months. Cutting spending, trashing films, licensing programming to Netflix, laying off employees, saving cash due to strikes — these aren’t development 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 have to be in good condition earlier than development can start. Nevertheless it’s unclear the place that development will happen. Boosting free money circulation and paying down debt might make Zaslav richer, however they are not clear catalysts for a number of enlargement for an organization saddled with slowly dying cable networks and related declining promoting income.

Simply because Zaslav needs traders to give attention to free money circulation as a substitute of metrics like streaming service subscriber additions, revenue and income doesn’t suggest 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 instances, or how loudly, he repeats it.

WATCH: Traders are stunned by Warner Bros. Discovery’s lack of full-year steering

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