Background: Warner Bros Discovery, one of our earliest portfolio names, might be bought out and merged with Paramount Skydance as reported by Wall Street Journal last week. The attached video and the bullet points below depict our journey with this stock since 2023. The situation is “live” and circumstances will be changing rapidly. We will monitor and update when new salient information becomes available. This is not investment advice.
This video post first appeared on 8percentpa.substack.com
Warner Bros Discovery (Ticker: $WBD) is one of our portfolio names and after last week, it delivered 126% return over 2 years. Well, if we had timed it better, it could have been 126% in 10 months. As such, this was an agonizing win because the stock roller-coastered with no alpha for a long time. We shall go into all the gory details below:
This was our Original Investment Thesis
- WBD has one of the best content library globally with iconic franchises like Harry Potter, DC Comics, Game of Thrones amongst many other brands (HBO, Discovery, CNN and more).
- The company is also a strong free cashflow generator and trading at double digit FCF yield was stable and EBITDA growing.
- Its closest competitor, Disney was engaged by activists and we thought US media could become more interesting. WBD was way cheaper than Disney in market cap and hence more interesting. WBD is also one of John Malone’s Liberty Global companies and his team has a strong track record of strong execution.
Our Full Roller-Coaster Ride
- Background: WBD was formed when Discovery merged with AT&T’s Warner Media c.2022 and was loaded with c.USD66bn of debt. Share price subsequently bobbed up and down violently but ultimately ranged bound from 2022 to 2024.
- This was pure pain and agony which we shall describe further below with our powerpoint slide. Fast forward to 2025, WBD then announced to split into two companies earlier this June.
- WBD was supposed to split into GrowthCo with Streaming, Movies, Content and all the sexy businesses and LegacyCo with free-to-air TV, CNN, Discovery and other less sexy businesses.
- However, there was another plot twist last week (12 Sep 2025). It was reported that Paramount Skydance ($PSKY) is preparing to buy Warner Bro Discovery (WBD) with funds backed by the Oracle’s Larry Ellison and his son.
- This came as a big surprise because Paramount Skydance was only formed weeks ago when Skydance bought Paramount for USD8.4bn. The market believed this though.
- Why? Oracle had a blow-out quarter with over USD450bn future orders, Oracle’s share price jumped >30% making Larry Ellison the richest person on the planet.
- With WBD’s share price pop, we have taken the bulk of the profits while keep a small toehold. but still, it was an agonizing victory as the stock did nothing for two years.
- Also, there was always the risk that WBD might have too much debt on its balance sheet and might need an equity recap. Equity recap or dilution usually meant permanent loss of capital.
- In the slide above, we describe our agony and pain in gory details. When we invested, there was the hype of the Max launch. We made money and thought we were geniuses.
- Max was WBD’s answer to Netflix and Disney+. But Max did not do well, cord cutting turned further south and earnings downgrades came in waves. Our position bled and the portfolio continued to suffer as market cap collapsed to USD20bn.
- In 2024, there were more twists and turns as depicted in the purple boxes. At times, we watched Shawshank Redemption on Netflix to remind ourselves that we needed hope. Hope is a dangerous thing. Hope can drive a man insane. But hope is also perhaps the best of things.
- Thanks to the Ellison family though, WBD now earned 126% return for our portfolio, making it the largest profit contributor for the portfolio.
- Please watch the attached video above which we included more slides and details.
Lessons Learnt
- Be careful when buying highly indebted companies, there is no room for error and there is high risk of permanent loss of capital. This played out as we held WBD. The market was constantly worried about equity recap. Share price traded as low as USD7. With market cap falling below USD20bn.
- Be careful of businesses in secular decline. Cord cutting was in secular decline. 70-80% of WBD’s EBITDA was in linear and free-to-air media and was impacted. But we ignored it. This was just stupidity.
- Size the bets properly. WBD should have been a more manageable position. Our team’s investment psyche is more suitable for more mid size positions rather than 1-2 outsized high risk high return bets.
- Lastly, for fun, the following is reproduced by the author after reading similar creations from smart people on X / Twitter. Apologies, yours truly cannot remember who but hope to thank the anonymous genius who inspired us.
Huat Ah!
This post does not constitute investment advice and should not be deemed to be an offer to buy or sell or a solicitation of an offer to buy or sell any securities or other financial instruments.
This post first appeared on 8percentpa.substack.com
