Discovery Hits 22 Million Streaming Subscribers

Revenue and free cash flow rose in Q4 — but so did expenses

PASADENA, CALIFORNIA – JANUARY 16: President and CEO, Discovery, Inc. David Zaslav speaks onstage during the Discovery, Inc. TCA Winter Panel 2020 at The Langham Huntington, Pasadena on January 16, 2020 in Pasadena, California. (Photo by Amanda Edwards/Getty Images for Discovery, Inc.)

Discovery ended 2021 with 22 million streaming subscribers, which was up 2 million from the previous quarter. That tally encompasses Discovery’s entire portfolio, including international direct-to-consumer products like Eurosport Player and GolfTV. But according to Discovery, the majority comes from Discovery+, though the company did not provide a specific breakdown.

Financially, the fourth quarter was a mixed bag for Discovery. Wall Street forecast Discovery’s fourth-quarter 2021 earnings per share (EPS) at 83 cents on $3.12 billion in revenue. Discovery whiffed on the earnings estimate, posting just 8 cents of diluted earnings per share, but was fine at the top line with revenue of $3.187 billion. Discovery did not provide an adjusted EPS number in its earnings release.

That revenue number was up 10% from the prior quarter. Unfortunately, company profit was only $38 million, as expenses — including those related to the restructuring ahead of the pending WarnerMedia merger — rose 11%. More granularly, U.S. advertising revenue rose 5%; internationally, the percentage jumped twice that. Distribution revenue increased by 17% domestically and 2% overseas.

Discovery President and CEO David Zaslav (pictured above) had an awful lot to say in his prepared statement adorning the company’s fourth-quarter and full-year 2021 financials. He was particularly pleased with the company’s strong free cash flow.

“2021 was by all measures an exceptional year for our company, in which we achieved significant operational, financial, and strategic objectives. We grew our global DTC paying subscribers to 22 million, a tailwind for our strong distribution revenue growth of 11%, while global advertising revenues grew 10% due to continued strength in our key markets and share gains,” he began. “Additionally, we ended the year with nearly $4 billion of cash on hand and generated robust cash flows, supporting our ability to invest in growth initiatives. Further, the successful recent broadcast of our second Winter Olympic Games across Europe, on the heels of our first broadcast of the Summer Olympic Games, underscores one of our key differentiators: in-language and locally relevant content. All of which position us well to take advantage of the remarkable opportunities ahead for Warner Bros. Discovery, which we believe will be among the world’s most dynamic media companies.”

Zaslav continued: “We, of course, are pleased to receive unconditional clearance from the European Commission, the expiration of the HSR waiting period, and clearance from other key international markets, and AT&T having received a favorable private letter ruling from the IRS. We also filed our merger proxy earlier this month and have scheduled our stockholder meeting for March 11th. Following the vote, and assuming the deal is approved by our stockholders, we expect to be on track to close in Q2.”

Discovery is in the process of merging with WarnerMedia, which is being spun off by AT&T. The blockbuster $43 billion deal is expected to close in the March-June quarter. Longtime Discovery boss Zaslav will run the new company.

The deal already has U.S. regulatory approval, so all that is left is a vote by Discovery’s shareholders, which should be a slam dunk. The telecom giant is holding an investor day on March 11 to go into more specifics of the merger, and to discuss the telecom giant’s leftover assets.

Discovery stock closed Wednesday at $28.21 per share. The U.S. stock markets reopen for the regular trading day at 9:30 a.m. ET. Zaslav and other top executives will host a conference call at 8 a.m. ET to discuss the quarter in greater detail.