How Warner Bros Discovery Delivered An Agonizing 126% Return For Our Portfolio

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

WBD Update - Full Post on Substack!

Full Post:

https://8percentpa.substack.com/p/update-on-warner-bro-discovery-media

We have discussed Warner Brothers Discovery (WBD) and deemed it as an interesting and cheap alternative to Disney. Share price has collapsed on the back of its heavy debt and poor earnings performance in 2023. The company is still losing money at the net income level for the past few quarters and looks like it could continue and even if it somehow breaks even, net income level will be low. As such, the stock is best valued using FCF. Here's a look at its full year 2022 results:

WBD was created in 2022 with the merger of Warner Media, which was spun out of AT&T, and Discovery. The current entity is an entertainment IP franchise powerhouse and a global media giant that operates cable TV networks with both premium entertainment and low cost family-friendly content as well as non-fiction science and lifestyle programming.

More interestingly, WBD is now home to iconic franchises like Game of Thrones, Harry Potter, Friends, Batman, Superman & the DC Justice League universe and Looney Tunes amongst others. It also houses distinguished media brands such as CNN, HBO, Cinemax, Discovery and Cartoon Network that most of us would be familiar with. As such, CEO David Zaslav estimated that WBD has 35% market share of the best content on Earth.

The investment thesis is therefore about owning such an entertainment content juggernaut which also generates tremendous amount of free cashflow at an attractive entry price today.

Let’s look at the simple financials which we skipped in the initial discussion.

Simple financials (Dec 2025 estimate, USD)

• Sales: 42.5bn
• EBITDA: 10.8bn, EBIT: 3.1bn
• Net income: -0.2bn, FCF: 5.8bn
• Current Debt: 40.0bn, Mkt Cap 21.0bn
• ROE 16%, ROIC 9% in 2019, currently negative
• EV/EBITDA 5.8x (Dec 25), PER currently negative
• Past EBIT margins: 10-25%, 0% in Dec 23 and 7% in Dec 24
• FCF yield >20%

While net income is negative, the company has been generating positive free cashflow. The slide from the full year earnings deck above showed how FCF ended at a spectacular USD6.2bn. Analysts are estimating that EBITDA and FCF would be sustained into 2024 and 2025.

Management has listed other key objectives above. While the targets were ambitious, WBD is led by a management with strong track record and we are seeing good progress. EBITDA has grown with the losses in DTC business segment gone now and 2023’s FCF has well exceeded its original target of USD4.5bn. WBD has been laser focused on FCF. If we count from its days when it was still just Discovery Ltd (i.e. since 2012), the firm has generated USD27bn in FCF cumulatively which is more than its market cap today!

1. Business Segment Updates

In the initiation, we did not discuss the segments in detail. WBD has three business segments: Studios, Network and DTC.

Studios create the core IP content and oversee the release of such content into films, TV programs, streaming services and the distribution of related consumer products, themed experience licensing and gaming. It is the engine of the WBD franchise but the segmentation sees it contributing to just 20-30% of EBITDA with EBITDA margins of 17-18%.

Networks consists of the US and international TV networks. This business is in secular decline with the disruption of Netflix and streaming. It is also the reason for the weak share price and therefore the attractive valuation. Analysts estimate that the business is declining c.5% annually. However, Networks is the main earnings generator today (c.90% of EBITDA) with EBITDA margins of >40%.

DTC which stands for Direct-to-Consumer is WBD’s premium pay TV and streaming service but is significantly weaker than Netflix or Disney at just single digit market share. In 2023, revenue grew 40%YoY reaching USD10.2bn (table below). But more importantly, EBITDA also just broke even.

Full Post:

https://8percentpa.substack.com/p/update-on-warner-bro-discovery-media