The 'Hogwarts Legacy' game set in the world of Harry Potter has been a huge success worldwide, generating $850 million from sales of more than 12 million copies within two weeks of its release on PlayStation 5, Xbox Series X|S and PC consoles. This is the biggest launch in the history of the brand owned by Warner Bros. Discovery (WarnerBros). It broke Twitch's single-player gaming record, reaching 1.28 million viewers (simultaneously) at launch. According to the developers, with over 280 million hours, the game also improved the company's internal records. What impact might this have on the publisher's stock?
Warner Bros. Discovery
Warner Bros. Discovery is a multinational media corporation that produces and distributes multimedia content, including movies, TV shows and video games. The company was formed in 2021 from the merger of WarnerMedia (owner of the brands HBO, CNN, Warner Bros., DC Comics) and Discovery, Inc. (owner of the Discovery Channel, Animal Planet, HGTV brands). Currently, Warner Bros. Discovery is one of the largest companies of its kind in the media market, owning a wide range of brands and services in the entertainment and media industries.
The company's business model is based on generating profits from these areas through various revenue streams, including: theatrical ticket sales, film and TV programme licensing, video game sales and advertising. Warner Bros. Discovery also earns revenue from subscriptions to its streaming platforms such as HBO Max, Discovery+ and other digital services such as enterprise advertising services.
Financial performance
Source: Warner Bros. Games
Hogwarts Legacy appears to be the most successful game launch in the history of the brand, owned by Warner Bros. Discovery, and the 'Harry Potter' RPG release also set a Twitch streaming platform record for single-player games, with 1.28 million simultaneous viewers at the time of its release. Additionally, according to the publisher: "there was also an increase in global fan engagement for the brand in general, with Wizarding World Digital generating 300% more traffic than the normal monthly average for the first 10 days of February."
The company's revenue in the past three quarters shot up by more than 200% year-on-year, but the operating result was the worst in a decade, showing a loss. This may have been influenced by the company's ongoing restructuring (accounting for 9% of costs), along with administrative fees (accounting for 19% of costs). In a letter to investors, company CEO David Zaslav reports: "With the major restructuring decisions behind us, this year we are focused on building and growing our businesses for the future, and we're off to a great start. We're seeing strong momentum across the enterprise, including our exciting long-term plans for DC Studios, the historic success of our latest HBO series The Last of Us, the ignificant financial and operating gains in DTC, and the record sales of our newest game Hogwarts Legacy. And with our unparalleled portfolio of assets and IP, a growing roster of exceptional creative talent, and some of the buzziest storytelling in the industry, we believe we have repositioned our businesses to take full advantage of the many opportunities ahead." In a media interview, he indicated that the company will produce the next films in the Lord of the Rings series and focus on restructuring the DC Universe and upcoming streaming service initiatives. The company is also set to grow its video games division, and Zaslav said that these are central to its strategy. One problem that may arise, however, is the costly redevelopment of DC. On the one hand, it would consume a lot of financial resources and, on the other, it would take time to turn a profit.
It appears that the revenue generated from the sale of the 'Hogwarts Legacy' game could increase revenue for the company as a whole by approximately 9% relative to Q4 2022. However, it is difficult to estimate how this would affect the company's bottom line, as we do not yet know the specific costs associated with the distribution and marketing of the title. However, the impact of the renewed interest in the 'Harry Potter' brand may translate into interest in the rest of the brand's products.
What does Wall Street think of the share price of Warner Bros. Discovery?
According to the Market Screener website, the company has 26 recommendations, most of which are buy recommendations. The average target price is set at USD 21.71, 36% higher than the last closing price. The highest target price is at USD 36 and the lowest is USD 11.
Source: Conotoxia MT5, WarnerBros, Daily
Grzegorz Dróżdż, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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