10-QPeriod: Q1 FY2021

Warner Bros. Discovery, Inc. Quarterly Report for Q1 Ended Mar 31, 2021

Filed April 29, 2021For Securities:WBD

Summary

Discovery, Inc. (WBD) reported its first quarter 2021 results, showing a mixed financial performance. Total revenues increased by 4% year-over-year to $2.79 billion, driven by a 7% rise in Distribution revenue, which benefited from the launch of the discovery+ streaming service and increased affiliate rates. Advertising revenue saw a modest 1% increase, though it declined 1% excluding foreign currency impacts, reflecting varied performance across segments. However, the company experienced a significant 53% drop in Net Income to $191 million ($0.21 per diluted share), and Net Income available to Discovery, Inc. fell by 63% to $140 million ($0.21 per diluted share) compared to the prior year quarter. The surge in Selling, General, and Administrative expenses (up 63% year-over-year) was a primary driver of the decline in profitability, largely due to increased marketing costs associated with the discovery+ launch. The company is actively investing in its direct-to-consumer (DTC) offering, discovery+, which is seeing early traction with growing subscriber numbers and international rollout. Despite the near-term profit dip, the strategic shift towards DTC suggests a long-term focus on subscriber growth and evolving media consumption habits.

Financial Highlights

46 data points
Beta

Revenue

$2.79B

65.3% Gross Margin

Net Income

$140.00M

5.0% Net Margin

EPS (Diluted)

$0.21

Total Assets

$33.63B

Cash & Equivalents

$2.01B

Free Cash Flow

$179.00M

Financial Statements
Beta
Revenue$2.79B
Cost of Revenue$969.00M
Gross Profit$1.82B
SG&A Expenses$1.05B
Operating Expenses$2.40B
Operating Income$396.00M
Interest Expense$163.00M
Net Income$140.00M
EPS (Basic)$0.21
EPS (Diluted)$0.21
Shares Outstanding (Basic)585.00M
Shares Outstanding (Diluted)667.00M

Key Highlights

  • 1Total revenues grew 4% to $2.79 billion, driven by a 7% increase in Distribution revenue, largely due to the launch of discovery+ and higher affiliate rates.
  • 2Net income available to Discovery, Inc. decreased significantly by 63% to $140 million, or $0.21 per diluted share, compared to $377 million ($0.55 per diluted share) in the prior year.
  • 3Selling, General, and Administrative expenses increased by 63% to $1.05 billion, primarily due to marketing investments for the new discovery+ streaming service.
  • 4The company reported approximately 13 million total Direct-to-Consumer (DTC) subscribers as of March 31, 2021, indicating early progress in its streaming strategy.
  • 5Content rights, net, increased to $4.19 billion from $3.97 billion, reflecting ongoing investment in content creation and acquisition.
  • 6Cash flow from operations was $269 million, a decrease from $335 million in the prior year, impacted by lower net income and working capital fluctuations.
  • 7The company redeemed $335 million of its 4.375% Senior Notes due June 2021 in March 2021.

Frequently Asked Questions

Discovery, Inc. reported a 4% increase in total revenues to $2.79 billion, driven by its Distribution segment, which saw a 7% rise. However, net income available to Discovery, Inc. declined significantly by 63% to $140 million, or $0.21 per diluted share, primarily due to a substantial increase in Selling, General, and Administrative expenses related to the launch of its discovery+ streaming service.

The launch of discovery+ in January 2021 appears to be gaining early traction. The company reported approximately 13 million total DTC subscribers as of March 31, 2021. Distribution revenue increased by 12% in the U.S. Networks segment, partly attributed to discovery+, indicating a strategic shift towards subscriber-based revenue models.

While SG&A expenses surged by 63% due to marketing investments for discovery+, this is a strategic expenditure aimed at building the subscriber base for the DTC offering. Investors should monitor subscriber growth and the eventual contribution of discovery+ to overall profitability. The company's management indicated that the pandemic's impact on demand is not expected to be significant in 2021, suggesting a focus on recovery and growth.

As of March 31, 2021, Discovery had $2.0 billion in cash and cash equivalents and no outstanding borrowings under its $2.5 billion revolving credit facility. The company redeemed $335 million of senior notes in March 2021. Management expects its cash balance, operating cash flow, and credit facility availability to be sufficient for its needs over the next twelve months.