Warner combines to reshape performance! Hollywood supergiant Skydance (SKYD.US)'s Q3 core streaming revenue surged 21% and consolidated revenue doubled in the first half of the year

The Zhitong Finance App learned that after Hollywood supergiant Skydance (SKYD.US) released its latest performance report, post-market transaction prices weakened and fell by more than 4% at one point. The market seemed to be re-weighing the pace of growth and implementation related to Warner's mergers and acquisitions. Skydance's stock price rose 8.61% in regular US stock trading on Monday to close at $8.70. After the earnings report was announced, it fell more than 2% after the market. According to financial data, Skydance's Paramount streaming media price increases and advertising monetization were effective, and the company also clarified the cost reduction route for Warner's integration, but the release of Warner's single sheets fell short of expectations, which may reduce profits for the fourth quarter by up to 200 million US dollars compared to previous expectations. The first complete annual guidelines after the merger will have to wait until the quarterly report. This information provides a fundamental explanation for the return of gains.

Previously, at the beginning of October, Paramount Sky Dance completed a huge $110 billion acquisition of Warner Bros. Discovery (WBD). After the merger, the new company was officially named “Skydance,” which also meant the birth of a new Hollywood giant.

The third-quarter financial report covers the original Paramount Skydance business as of September 30. Warner Bros. Exploration (WBD) was delivered on October 6, and the consolidated list only began in the fourth quarter. According to the company's comparable caliber, revenue for the third quarter was US$7.025 billion, up 5% year on year, slightly lower than the agreed forecast of US$7.070 billion and about US$45 million lower. The adjusted EBITDA was US$1 billion, up 0.3% year on year, and profit margin was 14.2%. Operating profit of US$368 million, net income to mother of US$73 million, diluted earnings per share of US$0.06. The company's adjusted earnings per share of $0.45 were $0.32 higher than FactSet's unanimous market forecast of $0.13 and $0.27 higher than the higher-level consensus forecast of $0.18 shown by Zacks.

In terms of cash flow data, Skydance's operating cash flow is US$123 million, and free cash flow is only US$31 million. The latter has already included US$174 million in restructuring, transaction and transformation expenses. Management judged that the original Paramount business is still expected to reach the upper limit of the previous 2026 profit forecast, that is, an adjusted EBITDA of 3.9 billion US dollars.

Performance data shows that Skydance is growing the fastest in content production and licensing, and the most obvious improvement in monetization is streaming media. Production business revenue was approximately US$1,496 million, an increase of 23%, mainly benefiting from content licensing and third-party production, and adjusted EBITDA of US$129 million. Direct Consumer Business (DTC) revenue was approximately US$2.5 billion, up 11%, and adjusted EBITDA of US$225 million.

Skydance's Paramount+ revenue increased 21% to US$2,134 million, subscribers increased 6% to 82.2 million, and average revenue per user (ARPU) increased by about 14%, reflecting earlier price increases and advertising growth. Traditional TV revenue was about US$3,024 million, down 7%, and advertising and distribution subscription revenue fell 8% and 5% respectively, but cost reduction supported it to record an adjusted EBITDA of about US$1,028 billion and 34% profit margin. Streaming media and production drive revenue, and traditional TV still contributes the most segmented profit. This is the key to judging the progress of the transformation.

Paramount+ is Skydance's core streaming platform. In Skydance's third-quarter earnings report, in addition to Paramount+, DTC also includes the free ad streaming platform Pluto TV and Showtime-related paid cable TV channel business. As a result, 11% was the revenue increase for the entire DTC business segment, and 21% was the revenue increase for the Paramount+ single platform.

Two superstudios joined, and the IP library began to amplify distribution value

The merged Skydance has three businesses. The production business makes money through theatrical distribution, content production, and licensing; the DTC business obtains subscription and advertising revenue through HBO Max, Paramount+, and Pluto TV, while the television business relies on CBS, CNN, and sports channels to obtain advertising and distribution revenue.

The acquisition of Skydance under Warner significantly strengthened the IP library. Paramount already has series such as “Mission Impossible” and “Star Trek,” and Warner brought “Harry Potter”, “Game of Thrones” and DC's Batman and Superman IPs. With a combined library of more than 15,000 movies, plus two Hollywood studios and its own streaming channels, Skydance is more capable of competing with Disney and other peers in terms of content breadth, continuous delivery, and cross-channel monetization.

The latest financial data shows that the amount of revenue Warner brings can already be quantified. According to financial data from the SEC exam preparation, according to the statistical caliber of assuming that the transaction has been completely completed, the revenue for the first half of 2026 will fully expand from the original Paramount's US$14.260 billion to US$31,648 billion after the merger, which is about 2.22 times the original. Consolidated DTC revenue increased 15% in the third quarter, with Paramount+, HBO and HBO Max totaling around 203 million subscribers, including repeat subscriptions.

Skydance plans to launch HBO Max and Paramount+ bundles in early 2027. A more intensive supply of content is expected to reduce user unsubscription due to the end of a single popular series, while increasing ad inventory and cross-selling opportunities. Whether the package can increase revenue per household and reduce churn rates will determine how much profit the scale of the content can be converted into.

$6 billion collaboratively targets profit, $87 billion debt tests cash flow

Skydance's management anticipates that Warner's mergers and acquisitions will bring annualized synergy benefits of at least $6 billion within three years, of which about 30% are expected to be realized in the first year and 70% are expected to be realized by the end of the second year, mainly from the integration of headquarters and real estate, technology, and marketing expenses. After delivery and related financing were completed, the total debt was approximately US$87 billion and the cash was approximately US$10 billion.

The company's management also anticipates a one-time cash expenditure of about $4 billion throughout the transition period, with the goal of reducing net leverage to 3 times by the end of 2029 and annual free cash flow of over $10 billion in 2030. The revenue expansion brought about by Warner will first be reflected in the consolidated figures, and shareholder returns will depend on how much cash can be left for debt repayment after cost reduction and incremental streaming profits after deducting interest and consolidating expenses.

Wall Street ratings before earnings reports have shown clear differences. Citi offered a purchase with a target price of $10; J.P. Morgan Chase raised it to a holding, target price of 9 US dollars; Bernstein maintained sales, and the target price dropped to 6 US dollars. What is worth tracking in the Quarterly Report is the first 2027 guidance after the merger, streaming profit margins, and the speed of debt reduction. They will provide the first complete set of data to test whether Warner M&A can increase shareholder returns.