This Equation Is Wall Street 101. Warner Bros Discovery Stock Analysis | Martin Shkreli

Warner Brothers and Discovery with large cap stocks like a 30% return is good with small cap stocks a 30% time return is not even wor worth your time so it's like a very tricky so Warner Brothers Discovery is like a recent merger gigantic reverse merger basically I really want to eat this Bagel that's been sitting on my desk two billion shares outstanding $8 stock you do the math what is that 2 * 88 and 8 16 half of eight is four that makes 20 quick math okay distribution advertising content could it be any less descriptive and other so distribution is probably what TV advertising is what it sounds like content is like probably film or other media 10 billion in Revenue not growing they actually shrunk classic media for you right these guys are just getting owned by social media what would you rather watch media about literally you Social media beating them down and your life or about people you don't get about social media is just like genius idea it's like top top three ideas of humanities from all time you got the wheel you got fire and you got social media pray to PE pray on people's narcissism so Warner Brothers Discovery is this like gigantically debt loaded company cuz they did that merger so they actually I mean it's kind of nuts this is a good example of like talking about Enterprise Value real quick so Chad I want you to pay attention in case you haven't heard this for the zillionth time I've given this lecture a 100,000 times I'm going to do it one more time I hope scr pill or somebody like that gets understands it or or CHS it all right so you got the stock price we all understand stock price right like that's just something you can keep on your screen and in this case it's like $8 in [💎] ENTERPRISE VALUE fact using godell if you're so implying let's say you're the CEO of Warner Brothers or something oh my God I got so many and you're like all you care about is Warner Brother stock my favorite feature godell it's such a small lame feature but I just love it like I could just make a gigantic like Warner Brothers Discovery stock price so you have this the stock price and it changes every second and we kind of know why and where and when that happens right so that's Warner Brothers Discovery um it's not changing every second is another story but it should be changing every second um could be my computer could be my software okay it changed um so you know it's 798 you know be 799 in a second from now or 796 or whatever so price stock price is simple that's really really simple shares is a little less simple but you can look up the shares outstanding and really good investors know how many shares outstanding there are for all the companies in their portfolio challenge yourself to think do you know how many shares outstanding there are of your favorite stock it's important you should know because that's how many shares the business is divided into and for this company it's this massive number I'm going to use this uh this big number 2.4 billion which makes sense because like if one share is only $8 you're buying a share of a business like that's not you know a lot of money $8 when you see how many Shar shes there are well that is a lot so if I just own one share just a zero turns into a one like or maybe a better way to do it is like here um like this is how many shares there are and this is how many I own just one out a 2.45 billion I don't own that much of Warner Brothers but let's say your dad was John Warner or whatever and he he created Warner Brothers a long long time ago and after all of the inheritances and splits and so forth you own a million shares what does that mean you you have $8 million right because each share is $8 and you have a million and you could sell them for around $8 maybe it' be$ 7.95 maybe it'll be 805 maybe it goes up a lot it goes to 10 but you own one 24 2,450 of Warner Brothers not quite 1% let's say John Warner or whatever his name is I'm just making that name up was very generous and you had no brothers and sisters and you were the sole Heir and you had 24 million shares so what is that chat like 150 million maybe 200 million yeah maybe $200 million and you own 1% of Warner Brothers well what if you owned 99% of the shares what if you owned like I don't know 2.4 billion and there was only 50 million shares publicly traded but your shares you own like 99% of the company well I would just multiply that times eight and that would be What's called the market cap so that's just the the all the shares outstanding times the current share price and we did that earlier that calculation came out to be 19.6 billion so that's what this company is worth when we say what's the market cap that's kind of what the company is worth and this number is called the shares outstanding and this number is called the stock price if you understand this like you're actually got a good ways of like stock market 101 if you really understand this um you're sort of past stock market 101 now stock market 102 it's going to be a little harder and this is a really perfect company to teach the stock market 102 um and stock market 102 revolves around this concept called Enterprise Value so market cap is how much it would cost right to buy all of the shares roughly 20 billion and that's important because if somebody says well Warner Brothers makes 4 billion a year well that would only take me 5 years to buy uh for for Warner Brothers to make all of its money back for that 20 billion if that makes sense like it would be such a good deal if Warner Brothers made four or five billion a year but if you told me Warner Brother only makes 50 million a year Well 50 million is a lot of money to anybody but that would not be worth 20 billion $50 million a year income Cash and debt equation company is maybe worth like 1 billion so I would avoid Warner Brother stock if that was the case and of course we can look at the financial statements and decide but what is Enterprise Value well it's part of an equation that's really important involving cash and debt Warner Brothers has cash and debt why well any business has cash and debt debts not necessarily A Bad Thing by the way you might borrow money to buy another company which is what happened here but what if you owned all those shares again let's go back to John Warner and you inherited all of um Warner Brothers so you inherited every single share and the company has cash in its uh bank account because it's a company right it it has to operate and how much cash does it have well you can look it up I looked it up in the 10 q and it's 2.9 billion it's a lot of money right and you say hey I own all the shares or most of the shares of Warner Brothers I want you to give me all that money the CFO would have no choice but say okay where should I send the money because it's your money you own all of the shares that's standing and if you went on the stock market and you had the money maybe you're Warren Buffett and you started clicking by on your Robin Hood and you spent all of your money or some of your money or whatever buying every share of Warner Brothers you actually also own the cash right you own all of the assets of the company you own the movies you own the TV channels you own the movies that haven't been made yet you own the video games you own everything and they have a lot of stuff you own Bugs Bunny uh which I think is a Warner brother's asset um all of those things become yours um and the company's still making money and so forth but the company also has debt and if the company is debt you also owe that money now it does not personal recourse to you but the business the debt of the company is gigantic it's 20 it's $42 billion in fact they have more debt than the company's worth it's pretty wild $42 billion of debt and three billion of cash so if you were to buy buy this company out and you tried to wire out this 3 billion the problem is your your lenders would say wait a second you got to pay me first you owe $42 billion and the business is only worth 20 billion so the Enterprise Value is a way of reconciling all this so what we do is we do Enterprise value is equal the market cap which we get from over here the 20 billion minus the Cash Plus the debt and that's the Enterprise Value what's important is to answer the question why and there's a lot of ways to answer this question but again if you think about the stock as this box when you buy a stock you're buying a piece of the Box what's in the box all of the company's assets which I'll say are green like cash property and plant intellectual property but you're also buying a share of the debt of the accounts payable things like that and the stuff in the Box determines in some part what the company is worth so if the stuff in the box is negative 39 billion of cash you have to take that into account that when you pay 20 billion for the Box there's -40 billion in the Box too so the Enterprise Value we calculated is 59 billion it's $59 billion so if the company makes 5 billion a year it's a lot less attractive than we thought why well we have to pay this debt off and it's going to take us nine years to pay that off and then it'll start going to the cash uh you know bank accounts which are yours but you still have to now get this debt lower so the Enterprise Value is often what I look at instead of the market cap often they're pretty similar in this case they're wildly different because Warner Brothers has so much debt sorry for the basic example but sometimes want to make sure you understand Wall Street 2.0 I'm sorry Wall Street 10 102 or stock market 102 101's pretty easy now as you can see Warner Brothers makes a ton of money uh in fact before interest in taxes they're making like six seven billion a year so they're going to pay off that debt pretty quickly and by the time the debts like half paid off it basically is like they not affecting the company right now they have so much debt they really have to kind of get rid of it but the way you get rid of it is with your profits and a billion every quarter means it'll take Not a growth company about 40 quarters before the debts gone 40 quarters is 10 years like other companies they have a cash flow statement the other weird thing is that this isn't a Growth Company it's an old Media company that isn't that exciting you know they're not not doing exciting things no media company really is doing exciting things media is being torn apart by the internet now some managers are really good and they find a way to grow even if they're in a crappy industry and I would argue that right now the media industry is a pretty crappy industry but once once they get out of all this debt from they that they had from combining Discovery and Warner Brothers or basically AT&T owned Time Warner and they merged Time Warner with Discovery try to understand the business a little bit better okay so Studios is so they release Dune Hogwart Aquaman and then there's networks Digging deeper (social media killing these companies) networks is TNT like all the all the normal um time order stuff and then they have HBO Max so content is films Etc HBO Max they closed in 2022 [Applause] okay Warner Brothers Motion Picture [Applause] group Discovery Channel Game of Thrones it's interesting social media like people making their own content like in aen Ross or uh whoever you know and then celebrities kind of owning their own ability to make content on Instagram or on wherever that's kind of killing these companies and it's hard to have a 360 deal with somebody like the rock or something like that like he's got his own assets and companies all right so here again they have distribution so annoying advertising and content but earlier they said it's Studios networks DTC Studios seems to me to be content networks to me seems to be distribution maybe advertising is networks okay they have eaab by segment too so Network is their most profitable segment at least that tells us something yeah I get that I get that like all three of them are in different buckets I I sort of get that but it's just like content is like okay so within Studios I see the it's all content so all of the Studios revenue menu is recognized in content which makes sense within networks all of it's recognized in distribution uh well not all of it but like half distribution half 54% distribution 39% advertising and the rest content so what's the rest 80 7% they do CNN they don't charge for the content they charge for the advertising they get a little bit of content maybe from some something or other but uh CNN Plus or something I don't know but most of it's distribution Operating results to like Comcast pays them and then they get some advertising and then DTC is all distribution but net net the company's not growing and I'm happy about this it's making it personal for a second but quarterly it's not growing after the merger obviously they they went through a gigantic growth let's assume that they have the same operating results forever which kind of is like me what media is right like Looney Tunes and some of these films and stuff like that they're like very like Warner Brothers been around forever right a lot of us grew up with Looney Tunes I know I did to me like companies like this will always have like a way to CNN is actually growing exist but like I also think the nature of content is changing dramatically CNN has actually grown quite a bit so I'm not sure that's where it's going to come from eventually CNN is going to kind of go away I mean cash flows have to go forever companies live in perpetuity they're not like people will movies go away I kind of think so right yeah a lot of the stuff yeah could be like AI so this some threat that there's going to be some of this content going to social media I mean more of it right people might make their own movies stuff like that maybe it gets easier to make content in the past it was harder celebrities make their own content so forth look at uh Mr Beast for example so yeah I wouldn't touch Warner Brothers it's not compelling enough like the manager zaslav or whatever his name is he's pretty good well I mean this isn't my space and to me I also have an emotional hatred for media so I'm like Final thoughts not the best person to like really look at these businesses and the massive amount of debt like usually helps kind of things kind of go wrong it's a really big bet on content cuz like between HBO films I would argue even cat's content basically it could be Ubi play if you think about Ubi people have nothing to do with their time but but taking content but video games are also kind of a big competitor Here video games and social media seem to be winning the content fors nobody wants to watch movies you know they want something cooler if you think they'll grow at all it's a decent buy but last quarter they didn't grow and all the stuff I'm saying right now like is it net positive for the company because some of this will help lower their costs too right doesn't seem to be a net positive I think it's a net negative but I have to be open-minded about that so like if they have a quarter where they grow like at all it's really good long I think but they have to show a way to grow in a pretty tough media climate like TV is going away right so like how do they do networks like how does networks half their business you know is networks they own game studios Warner Brothers games yeah it's not really a serious Studio Hogwarts games are pretty low margin to too games aren't exactly uh they can be high margin but they're they Dro in the bucket for these guys it's a it's a Content company most of these picks so if you're in like Zoom or um ioans they came from the godell chat room it's a lot of really smart people there so if you want to join godell uh and jump in the chat room please please feel free to do so it's a godell num nuum um it's 40 bucks a month the price is going to be going up a lot as we add more features so and it cost money to add those features uh so if you but if you subscribe you get to lock in your price for life and you can also sell your account down the road it's probably going to be pretty expensive because Bloomberg's $3,000 a month but yeah if you if you're in the godell chat I'm happy to look at stocks for you and my method of looking at stocks unfortunately is so long so if you just throw tickers at me I'm not going to have the time to do that but there's a lot of smart people there doing a lot of smart ideas a couple of my very wealthy friends are in there too so I have a couple of uh Aces on my sleeve there so some of the guys that have like names like cat guy 22 two or nerd autist 135 some of those dudes are some famous guys so uh Warner Brothers I'm not so hot on like it's okay