Warner Bros. Discovery breakup speculation ramps up after weak earnings report

Warner Bros. Discovery posted disappointing first-quarter results despite growth in streaming.

But the stock rose Thursday on renewed speculation that the company will spin off its slipping cable channels.

Late last year, David Zaslav-led entertainment Warner Bros. Discovery divided its business into two divisions to separate its troubled but still profitable cable channel business.

One division is anchored by its Burbank film and TV studios, HBO and streaming. The second contains the company’s large stable of cable networks, which include CNN, Cartoon Network, HGTV and TLC.

On Thursday, the company’s stock opened lower on the financial results, but jumped 5% after CNBC reported the company may shed its cable channels. By midday, shares were trading at about $9.

Traditional entertainment companies, including Warner Bros. Discovery and Paramount Global, have struggled amid investors’ recognition that younger consumers have little interest in cable TV, which has long provided a firm financial foundation for TV companies.

The problem is particularly acute for Zaslav, who has spent nearly a decade bulking up his portfolio with costly acquisitions that added more channels.

Wall Street wants firms to pare back. Competitor NBCUniversal plans to spin off its cable channels, including CNBC, MSNBC, USA and Golf Channel, this year into a new publicly traded company called Versant.

On the earnings call, Zaslav declined to say whether a spinoff at his company was in the works.

“We can move quickly if we decide to change,” Zaslav said.

Read more: Warner Bros. Discovery restructures as cable struggles, setting stage for deals

The company posted a net loss of $453 million, which underscored continued struggles in key business units, including lower television advertising at its cable channels.

The firm lost 18 cents a share on an adjusted basis, which was worse than analysts expected. Still, the result was an improvement over last year’s first quarter, when Warner Bros. Discovery lost nearly $1 billion.

The company generated $8.98 billion in revenue in the most recent quarter, missing analyst estimates of $9.61 billion.

During the first quarter, the cable channels revenue declined 7% to $4.8 billion.

The company added 5.3 million streaming subscribers during the first quarter, which featured the third season of HBO’s exotic resort murder series “The White Lotus” and the Max hospital drama “The Pitt.”

The streaming unit, which includes the HBO linear channel, now has 122 million customers. Streaming revenue grew 8% to nearly $2.7 billion in the quarter, and its adjusted earnings came in at $339 million, up from $86 million in the year-earlier period.