Skydance closed Warner Bros. Discovery with $74.6 billion of net debt. I see 23% downside to $7.20 as $6.4 billion of interest crowds out TV declines and slow savings.
Key points
- $74.6 billion in net debt tops $47.9 billion in stock value today.
- $13.5 billion in cash profit in 2027 on $66.0 billion in sales assumes $2.0 billion in savings.
- $6.4 billion in interest in 2027 consumes almost half of cash profit.
The call
Market hopes are too high after the Warner deal. The $9.37 share price implies $122.5 billion of firm value today. Firm value means stock value plus debt after cash. That is 9.1 times my 2027 cash profit. Cash profit means earnings before interest and tax.
Revenue stalled while operating profit stayed thin- Revenue $B
- Operating income $B
SEC XBRL via desk briefing as of Oct 8 2026. Pre-WBD.
Paydown will be slow because debt dwarfs cash flow. I expect $66.0 billion of sales next year. Margins stay near 20% then. I expect $2.0 billion of savings next year offset by TV declines. Interest of $6.4 billion then eats almost half that profit.
Target needs a lower multiple on heavy debt loadMy estimates using Oct 6 pro forma as of Oct 8 2026.
Valuation
| Item | Estimate |
|---|
| Sales in 2027 | $66.0 billion |
| Cash profit in 2027 | $13.5 billion |
| Peer multiple in 2027 | 8.25 times |
| Firm value in 2027 | $111.4 billion |
| Less net debt today | $74.6 billion |
| Target in Oct 2027 | $7.20 a share |
Peers with shrinking TV trade near 7 to 8 times profit. I pay 8.25 times for HBO and studio strength. Debt at 5.5 times profit means small misses hit equity hard.
Risks
- TV advertising and affiliate fees could fall faster, which you would see in quarterly affiliate revenue.
- Savings and streaming growth could lag, which you would see in quarterly subscriber adds and costs.
- High rates could lift borrowing costs, which you would see in bond spreads and cash interest.
What would change my mind
I would turn positive if net leverage fell below 4.0 times profit on retained cash rather than asset sales.