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Warner Bros. Discovery Inc. NASDAQ: WBD is a major entertainment and media company that owns well-known entertainment brands and intellectual properties. The Goliath consumer discretionary sector was formed through a merger AT&T Inc. New York Stock Exchange: T spin-off of WarnerMedia and Discovery Inc. in April 2022. For telecom giant AT&T, it was a way to get rid of $43 billion in debt and get $40.4 billion in cash in the deal to refocus on its core telecom business.

Discovery has been able to significantly expand its content and intellectual property under the leadership of its CEO David Zaslav to compete with the streaming giants. Netflix Inc. NASDAQ: NFLX, Amazon.com Inc. NASDAQ: AMZN Premier and Walt Disney Co. New York Stock Exchange: DIS Disney+. Although the merger went smoothly, the execution and integration of the two companies proved problematic as their stock prices fell more than 60% from their post-merger high of about $27.50.

Mistakes and failures along the way

Although the merger held high hopes for growth and cost synergies, the company had many obstacles along the way, resulting in layoffs, cash disasters, budget cuts, cancellations and closures. The company has a treasure trove of channels, networks, studios and IPs, including the DC Universe, consisting of the most famous superheroes such as Superman, Batman and Wonder Woman. In an effort to turn things around, the company announced a significant restructuring of the company on December 12, 2024.

Corporate restructuring: there were two of them

Warner Bros. Discovery announced the implementation of a new corporate structure in which the company will be divided into two main operating divisions (compared to the previous three).

Global Linear Networks Division will house its linear traditional television networks, including Discovery Channel, CNN, OWN, TLC, TNT, TBS, Travel Channel, Animal Planet, Food Network, HGTV, etc. This segment will be focused on maximizing profits and free cash flow from existing channels. to assist in deleveraging.

Streaming and Studios Division is combining its streaming platforms, including HBO Max Discovery, and its television and film production studios, including Warner Bros. Pictures, Television and Animation Group, New Line Cinema, Castle Rock Entertainment and DC Studios. This segment will become a growth driver, providing stable returns on investments in content creation and streaming.

The new corporate structure is expected to be completed by mid-2025. CEO David Zaslav said: “We continue to prioritize ensuring our Global Linear Networks business is well positioned to continue to grow free cash flow, while our Streaming & Studios business focuses on driving growth by delivering the most exciting stories history in the world.

Our new corporate structure better fits our organization. This increases our flexibility with potential future strategic opportunities in the evolving media landscape. This helps us build momentum and creates opportunity as we evaluate all opportunities to create significant shareholder value.”

Benefits of the new corporate structure

By splitting the company into two divisions, Warner Bros. Discovery hopes to improve its efficiency and productivity in the future. Benefits include:

· Unlocking Value and Focus: The new structure provides clarity of focus and unlocks value. The Linear Networks Division is focused on maximizing profits and cash flow through existing franchises. The Steaming and Studios segments will be able to make riskier content investments with a focus on growth and maximizing ROI.

· Strategic flexibility: Division into two separate and identifiable divisions allows each division to independently adapt to the changing media landscape. This allows them to even consider potential spin-offs, sales, acquisitions, and licensing agreements without bureaucratic red tape.

· Streamlined Operations and Decision Making: The new structure establishes clear boundaries of responsibility, goals and accountability. Streamlined operations allow you to make decisions more efficiently and quickly with less bureaucratic red tape.

For investors, the ability to spin off parts or all of its divisions can enhance shareholder value because the company has many well-known brands and intellectual property rights. This allows the company to be assessed in parts rather than lumping them together. As the trend of bundling streaming services grows, Warner Bros. Discovery is about separating their components so the market can better appreciate their value.

WBD Stock Is Trying to Use the Cup and Handle Model

As the name suggests, the cup and handle pattern is made up of two separate patterns: the cup and the handle. A cup forms when the stock reaches a swing high, marking an edge line, when the stock falls to a swing low, forms a rounded bottom and rises back to retest the cup edge line. Once the cup shape is completed, the butt again swings away from the edge line, forming a shallow rollback, before swinging up again to re-check the cup edge line, forming a handle. A cup and handle breakout occurs when the stock is able to break above the cup edge line on the handle bounce and third attempt.

WBD formed a cup line at $12.67 and fell to a low at $6.69. It formed a rounded bottom and rallied all the way to the $12.67 cup edge line, completing the cup pattern. The stock fell back to the $10.39 Fibonacci support level as it attempted to bounce back to form a handle. Daily pegged VWAP support rises to $8.90. The daily RSI stopped at 52. Fibonacci (Fibonacci retracement support levels are at $9.77, $8.98, $7.98 and $6.69.

The average consensus target price for UBD is $11.44which implies a growth potential of 7.83%. and his highest analyst price target is at US$18. It has 10 analyst ratings of Buy and 12 ratings of Hold. The stock’s short interest is 4.27%.

Actionable Option Strategies: Bullish investors may want to wait for WBD to pull back and consider using cash-backed puts at Fibonacci retracement support levels to buy the dip. If the stock is allocated, then writing covered calls at high Fibonacci levels implements a wheel strategy for income opportunities while hedging the downside with the premium received.

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