Discovery Gains 5.3% As 4Q Profit Surpasses Estimates

Shares of Discovery Inc. were up by 5.3% in pre-market trading on Feb. 22 as the media company reported 4Q adjusted earnings of $0.76 per diluted share that came in ahead of analysts’ estimates of $0.72. Revenues in the fourth quarter came in at $2.88 billion, flat year-on-year versus consensus estimates of $2.83 billion.

Discovery’s (DISCA) CEO, David Zaslav said, “2020 was a year of change, challenge, and opportunity, and our company has shown incredible resilience, creativity and focus as one global team. We are off to a promising start in 2021 with the successful launch of discovery+.”

“We have now surpassed 11 million total paying direct-to-consumer subscribers globally and are on pace to be at 12 million by the end of the month, underscoring the value of the investments we’ve made in content, beloved personalities and brands with huge consumer appeal, supported by industry-leading DTC capabilities,” Zaslav added.

DISCA’s US advertising revenues in 4Q were flat year-on-year at $1 billion while US distribution revenues were up by 5% at $709 million. The company’s international advertising and distribution revenues both showed a retreating trend year-on-year, with a decline of 1% and 4% respectively, in the fourth quarter. (See Discovery stock analysis on TipRanks)

Following the 4Q earnings, Rosenblatt Securities analyst Bernie McTernan reiterated a Hold rating on the stock.

“Discovery reported better than expected 4Q results with a revenue beat and slightly higher margins leading to a 7% adj. EPS beat,” McTernan wrote in a note to investors. “Importantly, discovery+ has 11M subscribers and expected to be at 12M by the end of February. Discovery+ will likely be the focus of the [earnings] call – ARPU, geographic mix, changes in investment levels, etc.”

Overall, analysts are cautiously optimistic about the stock with a Moderate Buy consensus rating. That’s based on 6 analysts recommending a Buy, 8 analysts suggesting a Hold, and 2 analysts recommending a Sell. The average analyst price target of $36.07 implies 29% downside potential to current levels.