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Discovery (DISCA) Down 14.3% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Discovery Communications (DISCA). Shares have lost about 14.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Discovery due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Discovery Q1 Earnings Miss Estimates, Revenues Up Y/Y

Discovery reported first-quarter 2021 adjusted earnings of 21 cents per share, missing the Zacks Consensus Estimate by 65.6% and decreasing 61.8% year over year.

Revenues inched up 4.1% year over year to $2.79 billion and beat the consensus mark by 0.2%.

Top-Line Details

Advertising revenues climbed 0.9% year over year to $1.42 billion. Moreover, Distribution revenues increased 7.1% year over year to $1.31 billion. Other revenues were $67 million, up 15.5% from the year-ago quarter.

U.S. Networks (64.7% of revenues) revenues increased 2.8% on a year-over-year basis to $1.81 billion. Advertising revenues declined 4.5% while distribution revenues grew 12.4%.
 
Subscribers of Discovery’s fully distributed networks were 2% lower on a year-over-year basis. Total portfolio subscribers declined 4% year over year.

International Networks revenues (35.4% of revenues) increased 6.9% year over year to $987 million. Advertising revenues were up 15.7%, while distribution revenues were down 0.2%.

Discovery ended the first quarter with 13 million paying direct-to-consumer subscribers. The company launched discovery+ on Comcast Xfinity and Amazon Prime Video Channels in the United States, Starzplay in MENA, and on Samsung Smart TVs and Amazon Fire TV devices in the United Kingdom and Ireland.

Operating Details

In the first quarter, selling, general and administrative (SG&A) expenses surged 62.9% from the year-ago quarter to $1.05 billion. This year-over-year growth was due to 13% increase in SG&A, resulting from higher marketing-related expenses and personnel costs to support discovery+.

Adjusted operating income before depreciation & amortization (“OIBDA”) decreased 24.8% from the year-ago quarter to $837 million. Excluding the foreign-exchange impact, OIBDA decreased 24%.

U.S. Networks adjusted OIBDA decreased 19% from the year-ago quarter to $823 million.

Moreover, International Networks’ adjusted OIBDA declined 27.1% from the year-ago quarter to $151 million. Excluding the forex impact, adjusted OIBDA was down 21%.

GAAP operating income declined 49.2% year over year to $396 million.

Balance Sheet

As of Mar 31, 2021, cash & cash equivalents were $2 billion compared with $2.09 billion as of Dec 31, 2020.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -18.59% due to these changes.

VGM Scores

At this time, Discovery has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Discovery has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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