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Why Is Discovery (DISCA) Up 0.3% Since Last Earnings Report?

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A month has gone by since the last earnings report for Discovery Communications (DISCA). Shares have added about 0.3% in that time frame, underperforming the S&P 500.

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

Discovery Q2 Earnings Top Estimates, Revenues Rise Y/Y

Discovery reported second-quarter 2021 adjusted earnings of $1.01 per share, which beat the Zacks Consensus Estimate by 83.6% and increased 152.5% year over year.

Revenues increased 20.5% year over year to $3.06 billion and beat the consensus mark by 3.1%.

Top-Line Details

Advertising revenues climbed 28.6% year over year to $1.63 billion. Moreover, Distribution revenues increased 11.7% year over year to $1.36 billion. Other revenues were $57 million, up 32.6% from the year-ago quarter.

U.S. Networks (64.4% of revenues) revenues increased 12.4% on a year-over-year basis to $1.97 billion. Advertising revenues increased 12.2%. Distribution revenues grew 12% primarily driven by the launch of discovery+ in January 2021 and increases in contractual affiliate rates.

Subscribers of Discovery’s fully distributed networks were 3% lower on a year-over-year basis. Total portfolio subscribers declined 7% year over year.

International Networks revenues (35.7% of revenues) increased 36.9% year over year to $1.09 billion. Advertising revenues were up 87.7% while distribution revenues increased 11.1%.

Discovery ended the second quarter with 17 million paying direct-to-consumer subscribers. For the second quarter, Discovery was the #1 most-watched pay-TV portfolio in the U.S. among key demographics and the #1 portfolio in all of television for average time spent viewing among women aged 25-54.

Additionally, HGTV and ID were the #1 and #2 cable networks respectively among women aged 25-54 in Total Day during the second quarter.

Operating Details

In the second quarter, selling, general and administrative (SG&A) expenses surged 49.9% from the year-ago quarter to $952 million.

Adjusted operating income before depreciation & amortization (“OIBDA”) decreased 0.9% from the year-ago quarter to $1.1 billion.

U.S. Networks adjusted OIBDA decreased 1.1% from the year-ago quarter to $1.05 billion. International Networks’ adjusted OIBDA increased 11.4% from the year-ago quarter to $215 million.

GAAP operating income increased 8.6% year over year to $779 million.

Balance Sheet

As of Jun 30, 2021, cash & cash equivalents were $2.8 billion compared with $2 billion as of Mar 31, 2021.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -11.11% due to these changes.

VGM Scores

At this time, Discovery has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, 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 A. 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. Notably, Discovery has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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