Cowen analysts upgraded Warner Bros. Discovery to outperform from market performance Thursday, calling CEO David Zaslav’s plan to not outspend competitors such as Netflix a “relief.” Warner Bros. Discovery has a robust content library, with film franchises such as Batman and Harry Potter, and therefore can already be competitive in the streaming wars, the analysts say.“While we are still cautious on the highly competitive streaming space, we think management’s approach to not trying to ‘win’ the DTC spending war is a more sustainable strategy than we see from some peers,” the analysts wrote.In the company’s April 26 earnings call, Zaslav doubled down on his commitment to take a judicious look at the company’s spending, saying that the newly merged enterprise will “invest at scale smartly and will uniquely position us to drive to become a fully scaled global streaming leader.”Zaslav has also pledged to cut out $3 billion in cost savings and synergies following the merger of Discovery and WarnerMedia. That cost-cutting strategy has already been seen in the company’s decisive shut down of CNN+.Still, Cowen analysts noted that the merger of the two companies holds some outstanding questions, particularly as to how Discovery management will handle scripted content. As it stands, the merged company’s revenue still skews toward its cable network channels.“Performance will heavily depend on CEO David Zaslav’s ability to blend the disparate cultures of the two companies and navigate his relationships with the Hollywood community,” Cowen analysts wrote. The analysts lowered their price target to $24 from $31.Other analysts are taking more of a wait-and-see approach on the merged company.Guggenheim analysts maintained a neutral rating at the end of April, saying that most of the promised cost savings will likely come in the second half of 2022.Analysts from Moffett Nathanson also maintained a neutral rating in late April, asking whether WarnerMedia’s current lack of cash flow can be remedied by new management, or whether it will continue due to the business model focused on premium scripted content.Further, the analysts question whether Netflix’s recent slowdown in subscribers will impact Warner Bros. Discovery and force executives to reconsider their strategy.“How will WBD prioritize investing in DTC without hurting its linear networks portfolio? Does Netflix’s recent subscriber slowdown change the plan to invest in DTC going forward?,” the analysts asked n an April 26 note.
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