So we know that entertainment giant Warner Bros. Discovery (WBD) has a plan to split off into two separate companies: Warner Bros., the studio and streaming arm, and Discovery Global, the networks arm. But a new report out from Wells Fargo suggests that Warner may actually be a takeover target once the split is done. That caught a lot of attention, and Warner stock surged up nearly 30% in the closing minutes of Thursday’s trading.
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Wells Fargo analyst Steven Cahall, who has nearly a five-star rating on TipRanks, thinks that there could be a lot of interest for Warner once it is no longer encumbered by the television arms and quite a bit of debt. Entertainment studios have tended to consolidate, Cahall noted, and Warner could make a very attractive target.
While Cahall named several names, the biggest one might be the least expected: Netflix (NFLX). Cahall noted, “This will be the only large [intellectual property] asset for sale at a time when most studios/streamers have big aspirations.” Netflix may not have done a lot of acquiring in the past, but the combination of a 100+ acre studio lot, a working library, and $12 billion in annual content spend might just make it especially attractive to Netflix. Plus, Cahall noted, such a move “…kickstarts a theatrical IP strategy, quickly scales video games and most importantly provides premium content to members.”
No Big Rush for Password-Sharing Crackdowns
Password sharing has been a problem for online streamers for some time now, as all those people sharing passwords are not paying full price for entry. And when streaming saw where Netflix got with its own efforts in stopping password sharing, the race was on to get a piece of that action as well. But HBO Max, Warner’s arm, is not in a hurry.
Warner wants to get more people in the door before shutting it and starting to push for full price, and password sharing is a great way to demonstrate that value. Netflix found that much out for itself; after all, Netflix did not start cracking down on password sharing until well after it became one of the biggest platforms around. Warner, meanwhile, is encouraging more people to show up and see what it has to offer, even if those people are doing so with borrowed credentials right now.
Is WBD Stock a Good Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on WBD stock based on eight Buys and seven Holds assigned in the past three months, as indicated by the graphic below. After a 63.71% rally in its share price over the past year, the average WBD price target of $14.08 per share implies 13.38% downside risk.
