Warner Bros. Discovery Stock Jumps To Over 3-Year High, Extends Gains After Hours: Here’s Why

Warner Bros. Discovery, Inc. (WBD) stock surged to a more than three-year high on Thursday, with the rally showing no signs of slowing, as it rose nearly 10% in extended trading. The stock settled Thursday’s session up nearly 29% at $16.17, marking its best day ever.

Mega Media Deal In Works?

Warner Bros. Discovery stock started rallying midday after a Wall Street Journal report, citing people familiar with the matter, said Paramount Skydance (PSKY) was preparing a majority cash bid for the company. The merger, if successful, could bring together two of Hollywood’s storied studios and leading streaming businesses, HBO Max and Paramount+.

Paramount Skydance, by itself, is a product of a merger between Paramount and David Ellison’s Skydance Media, which was consummated in early August. The merger followed the acquisition of Paramount's parent, National Amusements — previously owned by the Redstone family — by Skydance.

The Ellison family was reportedly eyeing acquiring both Warner Bros.’ cable networks and movie studios. In a strategic move, Warner Bros. announced in June that it planned to split itself into two companies: Streaming & Studios and Global Networks, with the separation expected to be completed by mid-2026.

The Journal’s report said, by making a bid for Warner Bros ahead of the planned separation, Skydance could potentially preempt a bidding war for the former’s Streaming & Studios unit from suitors including big techs such as Apple and Amazon.

Ahead of the report, Wells Fargo analyst Steven Cahall raised Warner Bros. Discovery’s stock price target to $14 from $15. His optimism was based on his view that there is a 30% to 50% probability that the company’s Studios & Streaming segment will likely be acquired. He named Netflix as the most likely buyer, but also included names such as Apple, Comcast, Paramount, Skydance, and Sony.

Warner Bros. Discovery was formed as a result of the merger of Warner Media and Discovery Inc. in 2022, following AT&T's spin-off of the former. 

The report, however, raised antitrust concerns if the two media conglomerates decide to confirm the deal officially. 

A CNBC report, citing people familiar with the matter, said Paramount Skydance CEO and Chairman Ellison has approached an investment bank to prepare a bid for the rival company. Warner Bros. Discovery hasn’t reportedly received a formal bid as of yet.

Ahead of the merger rumors, Warner Bros. Discovery had a market capitalization of $31.06 billion, compared to Paramount’s $10.20 billion. Their valuations have now swelled to $40.03 billion and $19.14 billion, respectively.

MoffettNathanson analyst Robert Fishman reportedly told CNBC that a bid for WBD “would solidify the overlooked value of its portfolio of assets that was weighed down by its balance sheet.” CNBC host Mark Faber said on air that the deal could be announced as early as next week, according to The Fly.

Content Bonanza

Warner Bros. Discovery’s Studios segment comprises its flagship Warner Bros. studio, DC Entertainment, and HBO. It is home to major film franchises such as DC Superheroes, “The Lord of the Rings”, “Game of Thrones”, and “Harry Potter”. 

The linear network business consists of cable networks such as the Discovery Channel, HGTV, Cartoon Network, CNN, TBS, and TNT. The company’s HBO Max streaming business had about 125.7 million subscribers at the end of the second quarter, compared to 77 million for Paramount+.  A potential combination is seen to offer rival services such as Netflix and Disney+ a run for their money.

Paramount’s flagship studio business operates under the name Paramount Pictures, and its TV media includes CBS Entertainment and Paramount Media Networks, which in turn comprises pay television channels such as MTV, Nickelodeon, Comedy Central, etc.

Investors, Retail Traders Cheer

While Warner Bros. Discovery shares skyrocketed on speculation, Paramount Skydance’s stock settled Thursday up 15.55%, and rose further in the after-hours session.

On Stocktwits, retail sentiment toward Warner Bros. Discovery stock improved to an ‘extremely bullish’ level by late Thursday from ‘neutral’ a day ago. The message volume also spiked to ‘extremely high’ levels.

Sentiment toward Paramount Sky stock flipped to ‘bullish’ (61/100) from ‘bearish,’ but the message volume, though picking up, was only ‘normal.’

Warner Bros. Discovery stock has gained nearly 53% this year, with much of that attributable to Thursday’s surge.

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