Warner Bros. Discovery’s CFO Has Analysts Charmed – but Investors Aren’t Buying It

·7 min read

Gunnar Wiedenfels has been unleashed.

The Warner Bros. Discovery chief financial officer may very well be the most important non-chief executive officer in Hollywood right now. And WBD CEO David Zaslav has dispatched him on a mission to help pitch the entertainment conglomerate’s recovery plan amid a crippled stock that’s seen $20 billion of value wiped away since Discovery bought WarnerMedia for $43 billion in April.

Wiedenfels has passionately pleaded the company’s case to investors at two of the industry’s most watched conferences — the Goldman Sachs Communacopia + Technology event held in San Francisco on Tuesday and last week’s Bank of America Securities Media, Entertainment and Communication confab held in Los Angeles. And, by most accounts, he appears to have wowed Wall Street.

“Gunnar is probably one of the best CFOs that I’ve seen in my career, he’s very detail oriented, he does the work, takes the time and goes over all the details,” Bank of America media analyst Jessica Reif Ehrlich said. “He gets in there and rolls up his sleeves.”

Only problem is, while the analyst community loves Wiedenfels, investors just ain’t buying what he’s selling so far. Shares of Warner Bros. Discovery are down 50% year to date, closing at $12.71 on Wednesday, and even dropped after his appearance at the Goldman conference.

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WBD’s stock price has been among the market’s biggest disappointments, with analysts dismayed that shares haven’t been able to gain traction and meet projections of $40. The stock hasn’t crossed $25 since it opened for trading on April 4, and most recently has struggled to even surpass $13.

It’s so ridiculously low that some of the best-known stock pickers are starting to make jokes about the studio’s financial fortunes. Last week, Wells Fargo analyst Steven Cahall said in a client note that investors should “close your eyes and buy it” and lowered his share price projection by nearly half, to $19.

One main issue troubling investors is that the company is saddled with about $50 billion in debt, mostly as a result of the merger. And, while Wiedenfels said Tuesday that WBD is making good progress on paying down that debt, it still puts a stranglehold on how much investors are willing to risk.

What’s more, WBD is still scrambling to identify a pledged $3 billion in cost savings from the bloated entertainment conglomerate, including major redundancies within the company’s streaming services. That means Wiedenfels controls the fate of some 11,000 employees whose jobs might be up for elimination. “We’re 150 days in, and as with any of these transactions, yes there are some surprises,” he said at one conference.

The company is “spending a lot of time wrapping up the synergy program,” he added, sounding a note of optimism. “One of the great opportunities here is integrating not just two companies but really five — Warner Bros., HBO, Turner, CNN and Discovery. There’s a lot of opportunity.”

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Wiedenfels certainly needs every opportunity he can get under Wall Street’s intense magnifying glass of the entertainment giant’s financials. He’s also made personal moves as a cheerleader of the company’s potential — snapping up $500,000 worth of stock in August to send a positive message to investors that he thinks the stock will recover.

Among his biggest concerns is that many on Wall Street expected second-quarter results in August would have been a pivotal moment, a chance to disclose all the dirty laundry that has weighed on the new company. WBD’s second quarter, the first time reporting as a combined company, spooked the market with an unexpected $3.4 billion loss.

Instead of injecting enthusiasm into the beaten-down stock, quarterly results stirred up more confusion. There’s been only a few instances of layoffs at a studio widely known to have massive duplication in its ranks, the company has been inexplicably yanking HBO content to remake its streaming platforms and its DC film division is in a state of chaos.

“WBD is a streaming underdog many counted out amid its share slump. Recent cost cuts and production cancellations also do not bode well for the newly-merged streaming newcomer,” said Joey Frenette, a contributor to stock market research and data firm TipRank. “Though the odds are stacked against the firm at this juncture, I do view the valuation as absurdly low and think the company may have an easier time pole vaulting over expectations now that they’re essentially near the floor.”

Leslie Grace Batgirl
Leslie Grace in the now-shelved “Batgirl” (Warner Bros.)

After pledging to make DC — home to superhero franchises such as “Superman,” “Batman” and “Wonder Woman” — into a rival of Disney’s Marvel Studios, Zaslav scrapped the nearly completed $90 million spinoff “Batgirl,” delayed the “Aquaman” sequel release by nine months to December 2023 and seems paralyzed about how to handle an already-shot spinoff of “The Flash” as star Ezra Miller faces multiple allegations of physical assault and even child grooming.

So it’s little wonder why movie producer Dan Lin, who had been in talks with Zaslav to run the film unit, decided to not take the job.

People familiar with Lin’s decision said he was particularly concerned about the shelving of “Batgirl,” a film in the works for years and nearly completed, in part so that Warner Bros. could take a tax write-off related to projects abandoned post-merger. But Wiedenfels said Thursday that canning the movie was “blown out of proportion a little bit” and explained that the company is committed to spending more than ever on content while still taking “a more rational approach.”

Every time he steps onto a conference stage, Wiedenfels must contend with a lot of these challenges and distractions. But people who work with him describe him as extremely affable, sharp and a financial wiz who has proven himself since Zaslav recruited him in 2016 from the German television giant ProSiebenSat.1. (His current contract with WBD runs through April 2024.)

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Beyond the Warner Bros. acquisition, Wiedenfels has been instrumental in helping Zaslav close a number of major deals, including Discovery’s nearly $15 billion acquisition of Scripps Networks Interactive in 2018, after which he unlocked about $1 billion in cost synergies through job cuts, department integrations and real estate sales.

“Nobody is going to fool him. He has found cost savings that are really incredible, even down to how advertising contracts are structured,” Reif Ehrlich said. “We all know from the old Time Warner days that there is a lot of waste and duplication at Warner Bros., and going through the books piece by piece takes a lot of knowledge.”

The first big wave of layoffs is coming shortly, with hundreds targeted in the company’s adverting sales unit. Karen Grinthal, a longtime Scripps and later Discovery ad chief who ran Food Network, announced last week she’s leaving the company. Her departure occurring just after she was just named to run ad sales for several cable networks at the company amid WBD’s efforts to sell its vision to advertisers. Ad buyers had voiced frustration during the annual “upfront” market that WBD wants advertisers to spend more money for spots to run on top-rated shows despite the ongoing erosion of viewership.

On Tuesday, Wiedensfels returned to his usual mantras, saying he’s “never had any doubts to deliver financial targets” and that “there’s a lot of opportunity.” The question is: How long will it take to convince everyone from mom-and-pop investors to the big mutual fund managers?

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