Discovery posts stronger than expected profits as ad sales recover

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Discovery, owner of channels like The Food Network, TLC and Animal Planet, beat Wall Street’s second-quarter expectations, due in part to the rebound in advertising sales following last year’s economic fallout from the pandemic.

Nonetheless, shares of Discovery fell over 5 percent in midday trading, as the company reported lower TV ratings and meager growth in streaming.

“TV ratings are collapsing,” Lightshed Partners analyst Rich Greenfield said on CNBC Tuesday. “Advertising revenues are lower in 2021 than in 2019”

The analyst posted a chart on Twitter showing that that while Discovery posted a 12 percent jump in second-quarter ad revenue, its ad sales are down 3 percent compared with 2019 levels.

But this problem isn’t specific to Discovery, Greenfield said. Cord cutting is accelerating across the TV ecosystem as customers are opting for streaming. With fewer eyeballs watching cable, ratings and ad revenues are falling, he said. And that’s a big problem for Discovery and rivals like Comcast’s NBCUniversal, which are turning to streaming as a way to stem their losses.

But getting into the streaming game is expensive and keeping pace with streaming giants like Netflix and Disney+, which have 209 million and 103 million subscribers, respectively, is gargantuan task.

On the call with investors Tuesday, CEO David Zaslav called out Discovery’s Tokyo Olympics coverage as bolstering subscribers for its streaming services, which includes Discovery+. The company, which nabbed the Olympics rights in Europe, added 2 million streaming subscribers in quarter giving a total of 17 million customers.

The CEO touted “record engagement” for the Olympics and said so far, across TV, streaming and licensed broadcasts, the Tokyo Games have drawn more than 275 million viewers. But this comes as ratings data indicates that the Tokyo Games are currently the least watched Olympics in recent history across Europe and in the United States.

Despite the ra-ra comments, Discovery acknowleged that cord cutting and declining TV ratings in the US impacted the company’s recovering financials.

For the three months ended June 30, net income grew to $672 million, or $1.01 a diluted share compared with year-ago income of $271 million, or 40 cents. A 12 percent gain in ad sales lifted overall revenue 21 percent to $3.06 billion versus $2.54 billion, a year earlier.

Wall Street expected EPS of $85 cents on revenue of $2.97 billion.

Before ending the call Zaslav commented on his company’s progress in completing its $43 billion mega-merger with WarnerMedia.

“The regulatory process continues to move forward as planned, giving us confidence in our previously stated time frame of mid next year to close,” he said.

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