As Warner Bros. Discovery (WBD) stock price sinks, is it a buy?

The Warner Bros. Discovery (NASDAQ: WBD) stock price plunged to the lowest level since June 27th as concerns about the company continued. The shares tumbled to a low of $11.85 on Friday, ~20% below the highest point in August.

Concerns about Warner Bros continue

Warner Bros. Discovery has been in the spotlight in the past few weeks, thanks to the success of Barbie, its highest-grossing release on record. While the movie has made headlines globally, there are serious concerns about the company.

Like Paramount, which I wrote about here, the biggest challenge is that the company owns many television networks in a time when cord-cutting is accelerating. Some of its top TV stations are CNN, Cartoon Network, TNT, and Animal Planet.

The company is also facing the challenge of the ongoing strike in Hollywood. While the strike is saving it some costs, the reality is that the lack of new shows could lead to some cancellations. The firm estimates that the strike’s savings in Q2 were about $100 million.

Most importantly, the recent results showed that the company is not growing as fast as expected. Its quarterly revenue came in at $10.38 billion, a 4.30% YoY decline. The revenue figure was lower than what analysts were expecting.

The results also showed that the company’s free cash flow was $1.7 billion. It also repaid $1.6 billion of its debt, bringing its net leverage to 4.6x.

A key challenge for Warner Bros. Discovery is that the number of subscribers in HBO Max, its crown jewel, is not growing as fast. In fact, the numbers revealed that the company lost 1.8 million customers even as Netflix added 5.9 million. Paramount+ added 1 million members to 61 million.

Therefore, I believe that the company lacks a clear growth catalyst going forward. I also expect the ongoing strike will have a negative impact on the company.

Warner Bros. Discovery stock price forecast

The daily chart shows that the WBD stock price made a strong bearish breakout on Friday as demand slipped. As it slipped, the shares dropped below the lower side of the symmetrical triangle pattern. It also moved below the 50-day moving average. The MACD has moved below the neutral point.

Therefore, the shares will likely have more downside in the coming weeks. If this happens, the next level to watch will be at $10.88, the lowest level on May 30th. The stop-loss of this trade will be at $13.