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Communications services ETF weakens after Warner Bros. failure  Discovery Q2


OArner Bros. Discovery Inc. (NasdaqGS:WBD) plunged, dragging exchange-traded funds tied to the communications services sector lower after the multinational mass media conglomerate revealed a steep loss in its latest quarterly earnings report.

The Communications Services Select Sector SPDR Fund (XLC) fell 1.2% on Friday.

Meanwhile, shares of Warner Bros. Discovery fell -16.5% on Friday. WBD represents 3.2% of XLC’s underlying portfolio.

The multimedia conglomerate posted losses of $3.42 billion and lower-than-expected revenue of $3.82 billion in the second quarter, which was partly attributed to its latest merger.

Management’s weaker financial forecast for 2023 and more cautious broadcast outlook “indicate that a company is going through many growing pains post-merger,” Wells Fargo’s Steven Cahall said in a note, lowering his outlook on WBD. at “equal weight”. “The assets are great, but the risks and capital structure create a greater range of results.”

Warner Bros. Discovery, the new company that combined Discovery with AT&T’s WarnerMedia earlier this year, has outlined ambitious plans for expansion, such as a combined streaming service for HBO Max and Discovery+, among others.

“We’ve had a busy and productive four months since the launch of Warner Bros. Discovery, and we’re more convinced than ever of the huge opportunity ahead. We have the strongest creative engine and proprietary content bouquet in the world. , as our industry-leading 193 Emmy nominations underscore, and we intend to maximize the value of this content through a broad distribution model that includes theatrical, streaming, linear cable, free-to-air, games, consumer products and experiences, and more, everywhere We are confident that we are on track to achieve our strategic goals and truly excel, both creatively and financially, and we couldn’t be more excited about the future of our business,” David Zaslav, President and CEO, said in a note.

However, some analysts have warned that the new conglomerate may bite off more than it can chew.

“While we love the collection of WBD assets, we are increasingly negative about the medium-term outlook. We didn’t appreciate the complexity of WarnerMedia’s integration task, and we think Discovery has also got a little more than expected Direct to consumer is tough enough for a peer group like Walt Disney, Comcast, Netflix and Paramount Global, and they’re not simultaneously trying to improve undermanaged assets, integrate complex organizations and to aggressively deleverage,” Wells Fargo’s Cahall added.

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