Discovery Delivers Strong Q2 Results; Shares Fall 4%

Discovery (DISCA) shares fell 4.2% even though the company delivered strong second-quarter financial results, which benefited from a recovering global advertising market. Total revenue was up 21% from the same quarter last year to $3.06 billion, beating consensus estimates of $2.97 billion.

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Revenue growth was driven by an increase in advertising revenue, particularly in the International segment (up 88% year-over-year). Notably, U.S. advertising revenue was up 12%.

Propelled by higher revenues, Discovery recorded earnings per share of $1.01, better than analysts’ expectations of $0.85 per share. (See Discovery stock charts on TipRanks)

Discovery ended the quarter with 17 million Direct-to-Consumer subscribers, with it also generating about $400 million in Next Generation revenues.

“We continue to fire on all cylinders, and I am very pleased with our momentum as we work to complete our transformational WarnerMedia transaction,” said Discovery CEO David Zaslav.

On the negative side, the company saw its operating cash flow decline to $834 million from $991 million as of the same quarter last year. Free cash flow also fell to $757 million from $879 million, attributable to a significant increase in spending on content and return to normal production.

During the quarter, Discovery completed the sale of the Great American Country linear network. Notably, the company recorded $76 million as a pre-tax gain, or $0.09 per share on an after-tax basis through the transaction.

Following the second-quarter earnings release, Barrington analyst James Goss reiterated a Buy rating on the stock with a $50 price target, implying 79.40% upside potential to current levels.

Consensus among analysts is that DISCA is a Moderate Buy based on 4 Buys and 5 Holds. The average Discovery price target of $44.38 implies 59.24% upside potential to current levels.