Warner Bros. Discovery Stock: 100% Chance until the Split?
The fair value of today's Warner Bros. Discovery stock is derived from the sum of its future parts, which I will attempt to estimate below.
Warner Bros. Discovery (WBD) is one of those stocks in my portfolio that requires a lot of patience from shareholders. I invested far too early after the painful merger from Discovery with Warner Bros. in mid-2022 and as a shareholder, I had to endure three long years of painful restructuring.
After 12 quarterly reports and many billions in reported net losses, mainly due to high write-downs of Warner assets in the WBD balance sheet, a positive net result was reported again for the first time in Q2 2025.
Following multiple additional purchases at bargain prices, the total WBD position in my model portfolio is not only now well into the green, but has also grown to become one of my largest positions overall. This makes it all the more important to take a close look once again at whether this overweighting is justified by genuine high conviction.
The Split of Warner Bros. Discovery
I have been expecting another major restructuring of the WBD Group for quite some time now.
"A sale, merger or spin-off of Linear Networks seems quite likely to me in the medium term." (Stefan Waldhauser, 22 Dec. 2024)
The split has now been announced: Warner Bros. Discovery plans to split into two publicly traded companies by mid-2026 at the latest. The future structure is logical:
The iconic Warner Bros. name will represent “Streaming & Studios”, comprising Warner Bros. Film and TV, DC, HBO, the Max platform, games, and extensive content libraries — in other words, IP, production, and direct-to-consumer services under one roof. This division will be led by the current WBD CEO, David Zaslav.
The existing "Network" assets will operate under the new name Discovery Global, including CNN, TNT, Discovery, Eurosport and a wide range of linear channels, supplemented by Discovery+'s profitable streaming offering. The new CEO is Gunnar Wiedenfels, the current CFO of WBD and old acquaintance whose good work I have been impressed by quarter after quarter over the past few years. In my opinion, he is the ideal candidate for this CEO role.
The strategic goal is clear: to separate the growth and valuation profile of the direct-to-consumer platform and powerful content library from the cash-rich but shrinking linear assets of legacy media.
At a date yet to be determined in 2026, today's WBD shares will be exchanged for shares in these two new companies. Until then, the separation will initially involve a lot of detailed operational work—from bond terms to internal transfer pricing and IT unbundling.
This is precisely why, in recent months, WBD has set up bridge financing of USD 17.5 billion and launched major buyback and exchange offers for old bonds. Of particular importance is the fact that the bondholders already approved the necessary contract amendments in June 2025 – this was a key milestone in ensuring that the split can be implemented in a legally secure manner.
The separation is planned as a tax-free transaction. Following the split, Discovery Global will initially retain up to 20% of Warner Bros., later monetising this stake to reduce debt in the best possible way.
These financial engineering measures may sound dry, but they are essential for defining future capital structures. The new Warner Bros., today known as ”Streaming & Studios”, should start with as little debt as possible, while the new Discovery Global, also known as “Networks”, should take on a large portion of the liabilities without overextending itself.
Overview of the 2nd Quarter 2025
Once again, the 2nd quarter 2025 clearly demonstrated why the WBD stock urgently needs this split. The quarterly report tells two very different stories, neither of which is adequately reflected in headlines such as “Stagnation in revenue of USD 9.8 billion” and “Leap into profitability”.
A closer look at the figures reveals these two narratives:
“Streaming & Studio” has had a very successful quarter and is telling a profitable growth story: The number of subscriptions rose by 3.4 million compared to the previous quarter, reaching almost 126 million. Following the upcoming launch of HBO Max in key European countries such as the UK, Germany and Italy, it is likely that a total of around 150 million subscribers could be reached by the end of 2026.
The studios increased their quarterly revenue by over 50% to USD 3.8 billion, driven by a strong cinema business (including the Minecraft movie), and achieved an EBITDA of USD 863 million (a 23% margin).
The streaming segment contributed $2.8 billion in revenue in Q2 (+9%). Adjusted EBITDA was clearly positive at $293 million (compared to -$107 million in the previous year).
I find HBO Max's latest moves in Southeast Asia particularly exciting. The partnership with Viu, one of the region's leading streamers, is a prime example of pragmatic and profitable growth. Rather than attempting to conquer each market (Indonesia, Malaysia, the Philippines, Singapore and Thailand) independently with maximum marketing power and the associated costs, WBD is leveraging the existing reach and infrastructure of a robust local partner. The joint bundle combines premium Western IP such as Game of Thrones and DC content (Superman, etc.) with Viu's locally popular formats.
This has two effects: firstly, customer acquisition costs are reduced because distribution runs via an established platform. Secondly, retention increases because the content libraries complement each other and are more relevant to a wider range of households. In price-sensitive markets, this combination of reach and perceived value is crucial.
Naturally, such deals reduce average revenue per user (ARPU) in the short term because revenues from such partnerships are lower than direct prices. However, they accelerate market penetration and lay the groundwork for increasing revenue per user via ad tiers and upgrades later on. For Warner Bros.' future business, this internationalisation strategy strikes the right balance.
So much for the success story of Warner Bros. However, this has been overshadowed by the ongoing decline of the network segment:
“Global Linear Networks” was unable to escape the negative secular trend in Q2 2025. An increasing number of viewers are cancelling their cable TV subscriptions (cord-cutting), which is having an adverse effect on advertising revenues. Specifically, segment revenues in Q2 2025 amounted to USD 4.8 billion, a 9% year-on-year decline.
This normally highly profitable segment's EBITDA was also significantly depressed at USD 1.51 billion, representing a year-on-year decline of 24% and a margin of 'only' 31%.
Share Price Setback After Q2 Figures
Warner Bros. Discovery posted a net profit of USD 1.6 billion in Q2 2025 for the first time since the 2021 merger, but the WBD stock lost 7% after the quarterly figures were released. The positive net result included a one-time effect of around USD 3 billion in profit from debt restructuring. As is often the case, this diminishes the significance of the GAAP profit.
Free cash flow was solidly positive at $702 million, which is much more important to me personally. However, this was significantly below the previous year's figure of $976 million and was dampened by taxes, working capital, higher interest rates and the costs of the split ($250 million).
However, I wouldn't take the setback in the share price after the Q2 figures too seriously: in the three months prior to that, WBD shares had gained a full 70% in value, reminding me once again how good it feels when an investment case finally pays off after such a long dry spell.
What Happens Next, and What is WBD Stock Really Worth?
The split is likely to be a real catalyst for the share price over the next 12–18 months, as valuation multiples always depend on a company's narrative. Conglomerates with conflicting trends, such as WBD, rarely receive the 'right' multiple for both areas from the financial market.
Two focused profiles, on the other hand, are priced more comparably — and thus more fairly — in the financial market.
The future Warner Bros. share will inevitably be compared with Netflix. This is because their profiles are similar, with a direct-to-consumer focus, and their business models are now easily comparable, as Netflix has also opened up to advertising revenue. In any case, Warner Bros. will position itself as a challenger to the streaming giant in the medium and long term.
Furthermore, Warner Bros. will likely continue to be compared with Disney and the newly merged Paramount Skydance. However, these two media conglomerates still carry a lot more baggage from the legacy media world.
Investors will then be able to directly compare the valuation of the future Discovery Global with that of other legacy media companies, such as Fox Corp. , AMC Networks, and Comcast. These companies are trading at single-digit cash flow multiples because the investor community does not believe in their long-term future.
The fair value of today's Warner Bros. Discovery stock is theoretically derived from the sum of its future parts, which I will attempt to estimate below.
Fair Value of the Future Warner Bros.
Warner Bros. Discovery has set a target of at least $2.4 billion in adjusted EBITDA for its studios by 2025, as well as a medium-term target of over $3 billion. For the streaming segment (HBO Max/Max), a figure of at least $1.3 billion in adjusted EBITDA has been mentioned for 2025. This would put the combined 'Streaming & Studios' segment at a minimum of $3.7 billion in adjusted EBITDA by 2025.
There is no official guidance from Warner Bros. regarding its 'Streaming & Studios' division for 2026. I am assuming an EBITDA of USD 4.5 billion, which could grow further at a double-digit rate in subsequent years.
Netflix is trading at $1,225 per share, representing an EBITDA multiple of just under 20. However, this premium price reflects its global streaming leadership and would be unrealistic for Warner Bros. Disney shares are currently trading at an EV/EBITDA ratio of around 12–14.
An EBITDA multiple of 13 for Warner Bros. therefore seems neither overly aggressive nor conservative to me: it takes into account the turnaround in streaming profitability, the sustainability of the first-class content library, and a significant discount compared to the 'pure' DTC leader Netflix.
Based on this, the Enterprise Value of the future Warner Bros. after the split would be 13 * USD 4.5 billion = USD 58.5 billion. Interestingly, with a WBD share price of $12, this is almost exactly equal to the current enterprise value of the current Warner Bros. Discovery conglomerate before the split.
In other words, following the split, current WBD shareholders will receive Discovery Global shares virtually free of charge.
The question is how much this bonus might be worth, given that it consists of a largely uninteresting and shrinking legacy media business.
Fair Value of the Future Discovery Global
Unfortunately, WBD has not published any official adjusted EBITDA guidance for the Global Linear Networks segment for 2025. Looking at the results for the last two years, we can see the familiar downward trend (caused by cord-cutting, the advertising market and sports rights costs), which accelerated again in Q2 of 2025.
Over the past four quarters, the segment has achieved USD 7.3 billion in adjusted EBITDA, which is down 16% from USD 8.7 billion.
Overall, I believe that a further decline in EBITDA to USD 6 billion in 2025 and USD 5 billion in 2026 is realistic. However, I am not yet in a position to predict the extent to which the management team, led by the new CEO, Gunnar Wiedenfels, will be able to stabilise EBITDA in the coming years. The company's strong cash flow will certainly help it play an active role in the inevitable industry consolidation that lies ahead.
Comparable companies facing similar challenges, such as Fox, Comcast and AMC Networks, are trading at low EBITDA multiples of 8, 5 and 4 respectively. For the future Discovery Global share, an EV/EBITDA multiple of 6 seems appropriate to me.
Based on this, the enterprise value of the future Discovery Global after the split would be 6 x 5 billion USD = 30 billion USD.
This would represent half of the current WBD enterprise value which is today around 60 billion USD.
From Enterprise Value to Price Target
The fair enterprise value of today's Warner Bros. Discovery can be theoretically calculated by adding together the sums of the two future parts, which amounts to USD 58.5 billion + USD 30 billion = USD 88.5 billion.
To derive a price target from this figure, we must make an assumption about the net debt following the latest refinancing steps and up to the split. After Q2 2025, the starting point is a net debt of USD 29.7 billion. In the absence of a crystal ball, I am assuming a further moderate reduction in debt of around USD 3 billion until the split in mid-2026, which would leave net debt at around USD 27 billion.
Equity would then have a theoretical value of USD 88.5 billion – USD 27 billion = USD 61.5 billion. Given a diluted number of shares of almost exactly USD 2.5 billion, this results in a price target of USD 24.60.
In contrast, the current WBD share price is $12. In my view, this suggests a realistic potential increase of 100% over the next 12 months, up to the split.
However, I anticipate that the new Discovery Global share will initially come under heavy pressure after its listing, as many current WBD shareholders may not wish to remain invested in a shrinking media business. But that is another issue, from which experienced investors could also benefit.
Conclusion
In recent months, my investment case for Warner Bros. Discovery has evolved significantly. The split is no longer just a possibility, but a project with clear milestones. As the unbundling progresses, the future earnings potential of the two entities becomes clearer, as does the current overall valuation, which is clearly too low.
In this constellation, WBD remains an extremely promising stock for me. Investors who can accept the volatility and focus on the underlying cash generation will benefit from two things: firstly, a foreseeable catalyst from the split, and secondly, a profitable streaming/IP business that is increasingly justifying its value and is set to make headlines in the future as a challenger to Netflix. Overall, this investment story could look very different by the end of 2026 compared to 2025.
*Disclaimer: The author and/or related persons or entities own shares of Warner Bros. Discovery. This stock analysis is an expression of opinion and not investment advice.