Discovery, Inc. Q4 2021 Earnings Conference Call/Transcripts and 10-K Takeaways: (NASDAQ:DISCA & DISCK)
Should you buy, hold or sell?
Here are my takeaways:
1/ The merger with Warner Media, HBO and Discovery entering new markets.
Everybody knows NetFlix, Disney, Apple and Amazon. But some of you are still new to Warner Bros. The streaming media giant known for their long history of content from entertainment (HBO), non-fiction and sports. Though they are currently not available to all countries with the merger set to be done before the second half of the year. Discovery and Warner Media combine their content pool for streaming media. This will spark chaos in the streaming media sector while competing for viewer’s time.
2/ Creative Pricing for their Platforms
We all know someone who is thrifty or hates to spend money on streaming platforms, so let me help you to compare the main competitors' pricing!
All prices are monthly, unless stated otherwise.
1. Netflix (increased price)
- Basic Plan: $12.98
- Standard Plan: $17.48
- Premium Plan: $21.98
2. Disney
- Disney+: $7.99
- Disney+: $79.99 (Annual)
- Disney Bundle (Hulu with ads): $13.99
- Disney Bundle (Hulu, no ads): $19.99
- Disney Bundle (Hulu, with ads + Live TV): $72.99
- Disney Bundle (Hulu, no ads + Live TV): $78.99
Now for Discovery+ (with Warner Media)
3. WarnerBros Discovery (Prices are not confirmed yet)
- Basic Plan: Free, but with ads/commercials
- Ad-Lite Plan: $8.99
- Premium Plan: $14.99
Though it is not confirmed, the price plan is definitely affordable with the large content pool they have in their libraries.
3/ Good Management Team
The team consists of people with experience in media and entertainment. The growth of the company depends on how they improve the revenue, cash flows and reduction of debt. Hence, they are rewarded with a bonus, if those expectations are met, which align with shareholders point of view.
I do have to highlight their salary package, it is somewhat higher than most of the competitors. But Disney is still the top golden parachute for executive level base salary.
Do read more on their proxy statement if you are interested!
4/ Huge Debt due to WarnerBros
This is the part where I am worried, as most huge investors will avoid investing in business that swallows up a huge debt from a merger. The acquisition of Warner Media will incur roughly around $43 billion in debt. This is particularly huge for Discovery, since their business model was to deleverage debt and generate more FCF in the long term. Although, the business itself, when run properly, tends to generate a fairly high amount of free cash flow that can be used to repay debt. This is still a risk that might have setbacks to the new business share price.
5/ Undervalued (Before Merger)
As for those who are new to Discovery, the stock price took a dive down to as low as $20 due to the Archegos’s incident, due to over-leveraging. The early days of the company, their management had foreseen the business to be slightly similar towards their peer group in terms of share price.
Currently, the value of the business is mispriced, the management saw the merger as a chance to resume the growth to focus on the accuracy of the management vision.
Should management succeed, the stock price in the future will not resemble the stock price record shown below. The business will be much larger after the acquisition of Warner Media and will have gained several different businesses.
6/ Conclusion
IMO, I am bullish, although the streaming industry has just started, the path is still unclear in the long term. I personally like how the management has predicted their stock price in the next few years by combining business to emerge as a juggernaut against Netflix and Disney. Though, time will if the underlying business is managing well after the merger. I will continue to decide after reading more quarterly reports, whether to increase my holdings.
As always stay safe, and may the markets be ever in your favour.
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Disclosure: I have a beneficial long position in the shares of DISCK either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Disclaimer: I am not an investment advisor, and this is not a recommendation to buy or sell a security. Investors are recommended to read all of the company's filings and press releases as well as do their own research to determine if the company fits their own investment objectives and risk portfolios.
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