Yahoo Finance's Allie Canal breaks down the completed megamerger by AT&T and WarnerMedia-Discovery.

Video Transcript

EMILY MCCORMICK: A mega merger in media is in the books. Discovery and WarnerMedia officially closed their deal Friday, combining their operations into one entertainment giant. Yahoo Finance's own Alexandra Canal joins us now to share the details. Allie, break it down for us.

ALEXANDRA CANAL: Hey, Emily. That's right. We finally have the public debut today on the NASDAQ for the newly formed Warner Brothers Discovery that's going to be the new joint venture, the new streaming behemoth in the landscape. That stock opened at $24.08 a share. It's currently trading above that level right now, up roughly 1%, 1 and 1/2%.

And this, of course, is a long time coming, a $43 billion merger first announced back in May. AT&T is spinning off WarnerMedia last week. That stock is also in the green on this news. You can see it on your screen right now, up about 6 and 1/2 percentage points. And shareholders of AT&T will hold 71% of the new company. Discovery shareholders will hold the remaining 29%.

And then we have Discovery CEO David Zaslav heading it all. Overall, analysts have been increasingly bullish about this new venture ahead of the debut. We had Evercore ISI Group upgrading the stock from in-line to outperform, announcing a $40 price target. I also had the chance to speak with Bank of America analyst, Jessica Reif, who called this, quote, "the most exciting story in the sector for the next few years." She cited a broad range of content, the immense advertising potential that could result from that.

And that combination does seem to work. We have that elevated scripted content from WarnerMedia and HBO. And then if you look at Discovery, their programming does really well overseas. It has that international appeal with cult-like followings for programs like "Dr. Pimple Popper," "90 Day Fiance." WarnerMedia also has lucrative development deals with high profile creatives like Mindy Kaling, Issa Rae, Matt Reeves.

And at the end of the day, we know that content is king. Content is what gets you more and more subscribers. As of the end of 2021, HBO and HBO Max had a combined subscriber count of 73.8 million. Comparatively, Discovery last reported 22 million subs. So there's more room to run there. And with David Zaslav heading the company, there's a lot of confidence in this new entity, at least from analysts right now.

BRIAN SOZZI: Allie, we were just talking to MoffettNathanson's Craig Moffett on the outlook for AT&T. He basically said it was challenged. Now, Warner Brothers, even as a standalone company, will have challenges of its own, right?

ALEXANDRA CANAL: Yeah, and the biggest challenge is going to be profitability, right? Streaming, production costs-- that has all skyrocketed, and it's forced investors to look beyond just subscriber count. They're asking different questions now. Is this a real business? Can it make money? What's the impact on EBITDA? What's the impact on free cash flow? And with this business, that's going to be pretty difficult to overcome. HBO Max alone likely to generate about $1.5 billion in EBITDA loss. That company also has a free cash flow target of roughly $8 billion by 2023.

So is that even possible? That's one question investors are asking. So there might be some short-term pain in terms of free cash flow and profitability. Also, we have restructuring management woes. We saw key WarnerMedia executives exit the company last week. CEO Jason Kilar, Warner Bros head, Ann Sarnoff, HBO Max chief, Andy Forssell, and more layoffs are definitely coming in the next few weeks and months, which is always difficult for any type of company.

So, still a bit of a bumpy road ahead, but I think longer term, this does have the potential to be a really strong competitor in this space and be able to compete with the big guys, like Netflix and Disney+. So we'll just have to wait and see what happens. And I have confidence in David Zaslav, and I think that's really what's key to this company, is a lot of experience in this space. And I think analysts are believing that this company, it's just really getting started right now.

EMILY MCCORMICK: Yahoo Finance's own Allie Canal, thank you so much for that report.