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Discovery: No-Growth Valuation And Likely To Grow

Mar. 02, 2020 7:22 PM ETWarner Bros. Discovery, Inc. (WBD)25 Comments
Dan Shuart profile picture
Dan Shuart


  • For less than 7x free cash flow, investors can purchase a growing company run by shareholder friendly management.
  • Discovery's competitive position is often overlooked when grouped with other linear programming-dependent peers.
  • John Malone placed a large bet at recent prices that Discovery will succeed in monetizing the Direct to Consumer segment.
  • Risks exist in a rapidly changing media environment but are largely offset by valuation.


Discovery, Inc. (DISCA) is an interesting investment at current prices amidst an evolving media landscape. Selling for less than 7x free cash flow, the market is pricing in terminal decline for Discovery’s business. Discovery has taken a different approach to the changing media environment, a path that has so far proven successful.

If the management team continues to execute its strategy in traditional linear cable as well as direct to consumer (DTC) segments, annual returns to shareholders could easily exceed 20%.

Discovery offers investors the chance to invest alongside famed media “Outsider”, John Malone, who has been a significant buyer of the stock in recent months.


Discovery competes in the media industry against the likes of Walt Disney (DIS), Netflix (NFLX), ViacomCBS (VIAC), AT&T (T), and many others. Stocks in this segment have been bifurcated between the haves and the have-nots as cord cutting has accelerated in recent years. A look at a comparison between Discovery and its peer group (legacy linear cable-dependent companies) against Netflix stock performance over the past several years tells the story. Not to compare Discovery to Netflix, but I believe Discovery is being inappropriately discounted which has created an opportunity for long-term investors.

Figure 1: Discovery Stock Performance. Source: Discovery 10K

Figure 2: Netflix Stock Performance. Source: Netflix 10K

Discovery owns several well-known U.S. brands across multiple segments. These include Discovery Channel, TLC, Animal Planet, Investigative Discovery, HGTV, Food Network, and the Travel Channel. Its international brands include Eurosport, DMAX, and TVN. The company operates in over 200 markets worldwide and retains ownership of virtually all content and IP.

Discovery essentially makes money in two ways – advertising and distribution. The company earns revenue from advertising fees for advertising space sold on their networks and digital products as well as from fees charged to distributors (such as

This article was written by

Dan Shuart profile picture
Dan is a Principal at Eagle Point Capital LLC. Eagle Point Capital's objective is to avoid the permanent loss of capital while maximizing the increase in long-term, after-tax purchasing power of funds. Put another way, Eagle Point Capital aims to build an indestructible long-term compounding machine. Dan also writes on Eagle Point Capital's website, www.eaglepointcap.com.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in DISCA over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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