Warner Bros. Discovery stock, hammered since the media giant was forged in the merger of Discovery and WarnerMedia, is up 28% in the last five days and analysts are starting to see an upside following billions of dollars worth of charges against earnings for restructuring and programming write-offs.

On Tuesday, Warner Bros. Discovery shares closed at $12.56, up more than 8% from the prior day. The rise was powered by positive analyst reports from Goldman Sachs and Bank of America.

When it reports its fourth-quarter earnings, Warner Bros. Discovery will be taking changes against earnings of $4.1 billion to $5.3 billion, capping a year in which CEO David Zaslav undid many of the strategic decisions made by WarnerMedia management and noted that the company was in worse financial shape than WarnerMedia’s projections suggested.

Wall Street thinks the company has cleared the decks and is headed in a new direction.

“We believe 4Q is an opportunity for management to turn the page to 2023 and reset the narrative,” BofA Securities senior media and entertainment analyst Jessica Reif Ehrlich said in a research note that rates WBD stock as a buy and as part of the brokerage’s US 1 list. She sees the stock rising to $21 a share.

“At this point, the majority of heavy lifting (related to restructuring charges etc.) has been completed; direct-to-consumer (DTC) losses peaked in ’22, with a path to breakeven in ’24; and the cyclical headwinds should abate as macro conditions improve,” Reif Ehrlich said. 

“It already appears January advertising trends have improved sequentially (albeit off a modest base) from December,” she said. “Levels and comps would ease as the year progresses. In addition, WBD has renewed over 30% of affiliate deals at attractive pricing terms, which should help mitigate the secular challenges related to cord-cutting. This, coupled with the spring launch of a new combined DTC service, a more robust film slate, incremental synergies and de-risked consensus forecasts makes WBD’s risk/reward highly attractive at current levels.”

Reif Ehrlich is lowering her forecast for Q4 revenue to $11.14 billion, but increasing her forecast for Q4 EBITDA. For 2023, she expects WBD to generate revenue of $43.3 billion and EBITDA of $11.3 billion.

Goldman Sachs analyst Brett Feldman included Warner Bros. Discovery stock in his top picks for 2023.

“While WBD confronts many of the challenges facing traditional media companies (cord-cutting, macro pressure on advertising, intense streaming competition), the stock trades at 6.5 times 2023 estimated enterprise value/EBITDA, which is at the low end of comps (6.5-15 times),“ said Feldman, whose target price for WBD shares is $19. “However, we estimate that WBD is best positioned to drive EBITDA growth, ramp free cash flow and de-lever its balance sheet in 2023 as it pursues $3.5 billion of merger synergies and relaunches its flagship streaming service.”

The enthusiastic analyst reports follow an appearance a week ago by WBD chief financial officer Gunnar Wiedenfels at the Citi Communications, Media & Entertainment Conference for investors.

At the conference, Wiedenfels said the debt-laden company was finished reducing staff and removing content from HBO Max in order to save money by reducing royalties and taking tax write-offs.

“That was very important to all of us, to really use 2022 to leave the purchase accounting behind us, leave those initial strategy changes behind us, get it all out there in terms of our restructuring estimates and then be able to turn the page forward,” he said. “I think the team has laid a great foundation and I’m really excited about the growth from here.”

Feldman said his favorite cable stock is Charter Communications, with a 12-month price target set at $422 a share.

“Cable stocks were significant underperformers in 2022 as they faced increased competition from fiber and fixed wireless that drove material declines in broadband net adds,” Feldman said.

“We believe the setup for Charter is more attractive heading into 2023 based on three key factors. 1) We expect Charter’s broadband net adds to show improvement throughout 2023 driven by its rural footprint expansion, network upgrades, and moderating levels of fixed wireless net adds. 2) Following Charter’s analyst meeting in December 2022, we believe investors’ expectations have been reset for capex, FCF and buybacks. 3) Valuation looks attractive, with Charter trading at 7.3x 2023E EBITDA vs. 6.5-7x for most telecom and cable comps vs. our outlook for materially faster EBITDA and FCF/share growth.” ■

About two weeks after a Bloomberg report that said Altice USA had hired investment banker Goldman Sachs to seek a buyer for its Suddenlink systems, company CEO Dexter Goei confirmed that a sales process is “going on,” but declined to offer more details. 

Suddenlink has about 1.8 million subscribers in 17 states in the Midwest, south and western parts of the country. Altice is also in the process of rebranding the Suddenlink systems under its Optimum brand.

Goei’s confirmation came during a conference call with analysts to discuss Q2 results.

News of the sales process confirmation drove Altice USA stock -- which had been down about 2% in after-hours trading earlier -- up nearly 9% to $10.50 each in after-hours trading.  

“We can confirm there is a process going on,” Goei said on the call. “I don’t think we want to comment any further than that, much like we did when there was a lot of chatter around Lightpath. We’ll update you and the rest of the market when we deem it appropriate to update. But at this time there is nothing further to talk about.”

Altice sold a 49% interest in its Lightpath telecom unit in December 2020 to Morgan Stanley Infrastructure Partners in a deal with an implied value of $3.2 billion. 

The value of Suddenlink would depend on the buyer. While Bloomberg had said the systems could sell for as much as $20 billion, implying a deal multiple of 14 times cash flow, many believe the systems would sell for less. 

Goie said the company has “received a lot of reverse inquiries for all or parts of the Suddenlink assets” but declined to speculate on potential buyers or prices. 

“I don't think we want to get into a debate,” as far as the financials or operations of the systems, Goei said. “The numbers have been out there historically on the assets, so you can probably figure out what the numbers look like.” ■

Altice USA stock continued to rise on Friday, albeit at a much slower pace than the day before, as investors started to realize that if a sale of its Suddenlink unit were to happen, it would likely be at a more reasonable price than the $20 billion that had been previously speculated.

Altice USA shares spiked as high as $13.17 each on Thursday, up 43%, after Bloomberg News said the company had engaged investment banker Goldman Sachs to look for potential buyers of its Suddenlink systems in the Midwest, South and West. According to the Bloomberg report, buyers could pay as much as $20 billion for the unit. The stock closed at $11.24 each, up 22.5% on July 21 and rose another 2% in Friday afternoon trading.

A $20 billion price tag would imply the deal could be done at a 14 times multiple of cash flow -- the prevailing metric for cable deals -- or about twice that of earlier deals. Suddenlink has about 1.8 million subscribers and passes about 3.9 million homes, which would make it the fifth largest cable operator in the country on a standalone basis. 

In a research note, MoffettNathanson senior analyst Craig Moffett wrote that while a Suddenlink sale would seem to contradict Altice USA’s previous direction -- it has pumped billions of dollars into building out its fiber network and has said Suddenlink was its clearest growth engine -- a deal could be done. Moffett noted that there has been substantial interest in cable assets from private equity funds recently -- Stonepeak Infrastructure Partners, TPG  and Macquarie Capital all have done recent deals -- as well as from smaller strategic players. But paying twice the prevailing rate for cable operations that will still need to be upgraded may be a tough row for Altice USA to hoe. 

Moffett also questioned Bloomberg's $1.3 billion cash flow estimate for Suddenlink, adding that was the company's trailing 12-month EBITDA in 2018. It likely has risen since then -- and if it hasn't Suddenlink has more serious problems -- and Moffett predicted that today it is more likely in the $1.6 billion range. That would value a $20 billion deal at about 12.5 times cash flow, still high, but more palatable to a potential suitor.    

As far as potential buyers Moffett wrote that the two largest operators -- Comcast and Charter Communications -- have held back on system purchases because of regulatory concerns. That leaves Cable One as the most likely strategic player interested in Suddenlink, because it is around the same size. 

But he added that Cable One would likely have to issue equity in a deal, and Altice USA probably has little interest in owning another cable stock. While Cable One has issued shares to the public and used the proceeds for deals in the past, the size of a Suddenlink deal would make that infeasible. 

“To be sure, none of this means that Cable One couldn’t be a potential buyer. It is simply to say that it wouldn’t be easy,” Moffett wrote.

That leaves private equity players. And though there haven’t been any significant PE cable deals this year, meaning the desire to pay high prices for assets may have waned, Moffett noted that there should be both significant amounts of capital available and a high degree of interest in Suddenlink. 

“In short, then, while we don’t expect the two largest cable operators to be active buyers, we nevertheless believe that Altice could mount a robust auction process, and that they could likely be able to attract a fair price,” Moffett wrote. “It’s just not likely to be a price comparable to what they might have gotten nine to twelve months ago.” ■ 

Shares in Altice USA soared Thursday (July 21) after a report in Bloomberg News said the mid-sized cable operator was seeking a buyer for its Suddenlink Communications division that could fetch as much as $20 billion.

According to Bloomberg, Altice USA is working with Goldman Sachs on a potential deal, citing unnamed sources.

Altice officials declined to comment on what they called "rumors."  

Altice USA CEO Dexter Goei opened the door ever so slightly to a sale back in May at the MoffettNathanson Media & Communications Summit, when he didn’t rule out a potential deal. 

“Suddenlink in itself is a great asset, great growth matrices, under-penetrated markets, less competitive areas, despite that it’s very rural,” Goei said at the conference. “But strategically, it's not a footprint that makes you sit there and say ‘Wow, that’s the most strategic footprint out there.’ So are we sellers or restructurers of certain of our assets in other areas outside of Cablevision? We're always open to listening to people out there if it makes sense for us to trade, swap, sell certain assets.”

Altice USA shares rose more than 40% in afternoon trading July 21, priced as high as $13.17 each, up 43.5% or $3.99 per share. Trading was halted briefly by the NYSE because of the spike, but was resumed later in the day. The stock closed at $11.24 each on July 21, up 22.5% or $2.06 each. 

Nevertheless, the gains have basically erased year-to-date declines for the shares — they were down 43% since December 31 prior to Thursday — fueled by broadband subscriber losses and threats of more intense pricing competition from telco Verizon Communications.

Altice USA has the greatest exposure of any operator to Verizon’s Fios product: About two-thirds of its Optimum footprint in New York, New Jersey and Connecticut competes with the telco. While its Suddenlink footprint is virtually Fios-free, it faces increasing competition from fixed wireless and fiber builds from large and small providers.  

Suddenlink operates primarily across 17 states in the Midwest, southern and western parts of the country. Although Altice USA does not break out specific data for Suddenlink, in a research note Wells Fargo Securities analyst Steven Cahall wrote that he estimates the unit has about 1.8 million customers and passes about 3.9 million homes. He also estimated that 2022 cash flow could be about $1.4 billion. At a $20 billion take-out price, that implies a 14 times cash flow multiple, which would be considerably higher than recent deals. 

Cahall had previously speculated in May that Altice USA could sell Suddenlink at a 7-to-8 times cash flow multiple, which would imply a $12 billion to $13 billion price tag. But if the Bloomberg report is correct, Cahall wrote that his past enterprise value for the company “was far too low.”

In a research note in September 2021, MoffettNathanson senior analyst Craig Moffett assigned a 12 times cash flow multiple to an upgraded Suddenlink, in line with past deals like Cable One’s purchases of Fidelity Communications (11.7 times) and Hargray Communications (17.2 times); adding that any possible buyer would not have as many cost-cutting opportunities as Cable One in those prior deals.

The list of possible buyers could run the gamut of private equity and strategic players, including Cable One, Breezeline (formerly Atlantic Broadband), Stonepeak Infrastructure Partners, TPG and others.    

Whatever the price it is likely to be far in excess of the $9.1 billion Altice paid for Suddenlink back in 2015. That purchase was the international telco’s first in the U.S., and led to its $17.7 billion purchase of Cablevision Systems in 2016.

While Altice was able to cut a lot of costs out of the two companies, more recently it has had trouble gaining broadband customers, reporting a loss of 13,000 high-speed data customers in Q1, after shedding about 3,000 broadband subscribers in 2021.

In a note to clients Thursday, Moffett said while the idea that Altice would sell Suddenlink isn’t that surprising — equity values across the cable landscape are short of their intrinsic values — he was surprised they would attempt a sale while they’re still publicly traded. Altice shares have been on a steady decline over the past several months -- prior to today (July 21), the stock was down 68% since September 3, 2021. That had some speculating in the past that Altice management could take the company private.  

“A large part of our recent reticence in taking a more constructive stance on the company despite its appealing valuation has been our fear that majority owner Patrick Drahi would be much more likely to take the company private first, potentially at only a modest premium, in order to capture the upside of a Suddenlink sale for himself,” Moffett wrote Thursday. ■

iSpot.tv, a leader among the alternatives to Nielsen, received a $325 million investment from Goldman Sachs Asset Management, one of the biggest investments made in the increasingly competitive media measurement industry.

Goldman Sachs gets a minority interest in iSpot.tv, which previously raised $58 million. Goldman joins Insight Partners and Madrona Venture Group as primary investors in iSpot.tv.

iSpot.tv will use the new funds to build out its real-time audience measurement, ad verification and campaign analytics platform. It said it will do that through adding engineering, expanding its sales force, and acquiring complementary businesses.

Also: The Front-Runner: How iSpot Became a Favorite To Claim Nielsen’s Measurement Crown

After Nielsen was found to have undercounted viewing during the pandemic and lost its accreditation from the Media Rating Council, the ad industry has been more enthusiastically looking at alternatives to Nielsen. Some of those alternatives might be used to buy and sell media in the upcoming upfront market.

The Goldman Sachs investment also comes at a time of intense financial activity in the ad tech and data business. Earlier this month, EDO, a measurement company co-founded by actor Ed Norton, got an $80 million investment from Shamrock Capital. Last year, another measurement company with data being considered as currency by media buyers and sellers, VideoAmp, raised $275 million. 

Companies in the sector are also making acquisitions to scale their capabilities, particularly in the CTV market. Innovid acquired TVSquared for $160 million in March after going public in a SPAC deal in December valued at $1.3 billion. Also last year Integral Ad Science bought Publica for $220 million.

Nielsen itself agreed last month to be acquired by private equity firms for $16 billion, including debt.

iSpot was singled out by NBCUniversal as being the leader in developing a cross-platform advertising measurement system that could serve as an alternative to Nielsen, whose own new system -- Nielsen One -- is expected to rollout next year and is being tested by The Walt Disney Co. along with media agency Magna.

Working with NBCU, iSpot’s system was put to the test in the first quarter measuring programming for media buyers and ad buyers, including the Olympics and the Super Bowl.

“We have been very impressed with iSpot’s world-class data analytics software platform and proprietary systems which have been purpose-built for the increasingly dynamic video measurement space,” said Leonard Seevers, partner and head of media investment for the private equity business within Goldman Sachs Asset Management. “We are incredibly excited to partner with Sean and the iSpot team to drive long-term growth and value creation together.” 

“We believe iSpot’s industry-leading scale in viewership data and its ability to deliver cross-screen audience and performance measurement in real time uniquely position the company to support the TV advertisement ecosystem in advancing the industry’s measurement standards,” added Joon Park, managing director at Goldman Sachs Asset Management. “We look forward to supporting the iSpot team in their exciting journey ahead.”

Goldman Sachs Asset Management has invested in other analytics, software and marketing technology companies including TransUnion, Innovid, GumGum and Human.

iSpot was launched by serial tech entrepreneur Sean Muller, who discovered he couldn’t find information about TV commercials online. He started iSpot in 2012 and it built a catalog of commercials and used smart TV automatic content recognition software to detect each time a particular ad ran and where it appeared. iSpot later licensed smart TV viewing data from Vizio’s Inscape unit to measure how many people saw each commercial.

“This team has modernized TV measurement and has achieved a lot of groundbreaking innovations for the industry in our first ten years in business,” said Muller, still the majority owner of the company. “As we enter our second decade, the investment and support from Goldman Sachs will help fuel the next generation of innovations and accelerate our ability to be the trusted cross-screen currency of choice.”

iSpot currently generates more than $100 million in recurring revenue, working with 400 large advertisers and media companies. 

iSpot has 350 employees and is headquartered in Bellevue, Washington, with regional offices in New York City, Los Angeles and Tel Aviv.

It has also been in on the acquisition business, buying Ace Metrix, which measures the impact of advertising creative, DRMetrix, which measures dynamic messaging detection and addressable advertising, and Tunity, which measures out-of-home TV viewership via its popular Tunity app.

Jefferies Group and Luma Partners acted as financial advisors to iSpot, and Fox Rothschild LLP provided legal counsel in connection with the transaction. Weil, Gotshal & Manges LLP provided legal counsel to Goldman Sachs in connection with the transaction. ■

Two significant endorsements recently for the value of virtual reality -- from Goldman Sachs and Deloitte consultants -- are escalating the hype about VR, which was virtually ubiquitous at CES this month. In addition, Google, which has been on the VR fringes, this week confirmed that it has created a VR division, headed by a senior executive, Clay Bavor, who has run Google's apps units, according to published reports.

Goldman Sachs analyst Heather Bellini,in a 58-page outlook on virtual reality and augmented reality, predicted that the technologies have "the potential to become the next big computing platform." Her most optimistic growth estimate expects that VR and AR could generate up to $182 billion in revenue, including hardware and software/content, by 2025 -- exceeding television revenue. 

Even at a slower pace, VR could generate $80 billion by then, she said. Bellini's forecast cites nine categories for VR and AR adoption. Videogames will represent about one-third of the revenue, with live events, video entertainment and retail collectively pulling in about another quarter of the money; healthcare, engineering, military and real estate applications will also use VR to varying degrees, according to the Goldman Sachs forecast.

Separately, consulting firm Deloitte Global, as part of its 2016 Telecommunications/Media/Telecom outlook, forecast that this year will be VR's first billion-dollar year. It expects that "full feature" VR -- based on consoles and wired devices -- will initially exceed the market for "mobile VR," which may rely on high-resolution smartphones for displays.

"VR’s capability is likely to improve further still over the years as processors improve, screen resolution increases yet further, and content creators learn how to create for the format," Deloitte's report observed. But it acknowledged that, "As can happen with emerging technologies, there is considerable hype about the impact of VR in the near term."

For cable operators, the VR/AR juggernaut poses countless questions, ranging from the capability of home gateway devices to signal latency for live events. There will also be challenges in dealing with the VR vanguard, which now includes Facebook's Oculus subsidiary, HTC/Vive and Sony in addition to Google.

CableLabs is working out "what cable operators need to do to prepare for a large market adoption of VR," said Steve Glennon, principal architect at CableLabs' Advanced Technology Group, who is focused on VR. CableLabs's recent consumer survey about the value of technology found "an overwhelmingly positive consumer response on the value, comfort and lack of nausea problems using the goggles," he said in an interview after CES.

"We’ve been trying to understand the bandwidth needs, and have found that a good consumer experience needs between 30 and 40 Mbps for 360-degree content with current technology," he said. "This is far above current video streaming bandwidth requirements for online video like Netflix and Hulu."

Glennon said that CableLabs is continuing "to look for tactical opportunities to speed the consumer adoption of the VR technology." 

At CES, "It was pleasing to see how mainstream this technology is becoming," Glennon added.

"I think this will quickly move from HD content for the VR sphere up to 4K," he observed, citing several immersive VR demos that were "not for the faint of heart."

Prior to CES, CableLabs CEO Phil McKinney characterized VR developments as "beyond the goggles," referring to the limited hardware demonstrations of previous years. "What we're going to see is content," McKinney told USA Today, emphasizing that sports and travel-related VR content are the most likely initial products.

Skeptics have noted that the new VR buzz resembles the 3DTV hype a few years ago, which fizzled away.  Bellini, in the Goldman Sachs report, waives off such cynicism, insisting that VR and AR are laying the groundwork for new kinds of devices "beyond PCs and phones" that include controls via head and hand motions.