WBD — Q2 2026 Financial Report Analysis

Streaming carried the quarter while the film studio and cable networks slipped

Warner Bros. Discovery's second quarter of 2026 (the three months from April 1 to June 30, 2026, reported on Form 10-Q on August 6, 2026) had two very different halves. HBO Max and the rest of the Streaming segment had their best quarter so far: more than $3 billion of revenue for the first time and $512 million of Adjusted EBITDA, up from $293 million. The rest of the company went backward. The film studio was up against last year's run of A Minecraft Movie, Sinners and Final Destination Bloodlines, and the cable networks were in their first second quarter without NBA basketball. Total revenue fell 11% to $8.72 billion.

The quarter also came while WBD waits to be bought. Paramount Skydance (PSKY) agreed on February 27, 2026 to acquire the company for $31.00 per share in cash. WBD stockholders approved the deal on April 23. In July, twelve state attorneys general and the Writers Guilds sued to block it, and the companies agreed not to close until the earlier of five days after the court rules or June 1, 2027.

Key figures

Operating margin is the share of revenue left after the costs of running the business, before interest and tax. Adjusted EBITDA is WBD's own profit measure. It leaves out depreciation and amortization, share-based pay, restructuring, deal costs and some purchase-accounting charges, so it is closer to the cash the operations produce. Free cash flow is the cash from operations minus capital spending.

Why net income fell 91%, and why that overstates the damage

Most of the drop in net income comes from last year's comparison. In Q2 2025, WBD booked a $2,958 million gain on extinguishment of debt: it bought back bonds through tender offers for less than their face value. Remove that gain and Q2 2025 would have shown a pre-tax loss of about $504 million. This quarter's pre-tax loss was $271 million. A $433 million income-tax benefit then turned that loss into $149 million of net income. The 10-Q says the benefit came mainly from lower pre-tax income and from tax deductions on employee share compensation.

At the operating level the quarter actually improved. Operating income was $237 million, against a $185 million loss a year earlier, helped by two cost lines:

• Depreciation and amortization fell 20% to $1,159 million. Intangible assets from the 2022 WarnerMedia acquisition are amortized on a front-loaded schedule, and some have reached the end of their useful lives. This is a bookkeeping expense, not cash.
• Costs of revenues fell 23% to $4,621 million. The largest single factor was the end of the NBA contract.

Other costs moved the other way. Selling, general and administrative expense rose 4% to $2,564 million on higher deal and integration costs and more marketing. Restructuring charges rose to $113 million from $80 million. Interest expense rose to $511 million from $463 million, mainly because of the bridge loan, which WBD repaid in full in June.

Segment by segment

Streaming (HBO Max). Distribution revenue, which is mostly subscription fees, rose 11% ex-FX to $2,689 million. Ex-FX means the growth rate with currency movements removed. The filing credits growth in existing markets and HBO Max's launches in the U.K., Ireland, Germany and Italy earlier in 2026. The comparison also got easier because a lower-priced renewal of a U.S. wholesale distribution deal, signed in Q2 2025, is now in both periods. Streaming advertising rose 8% ex-FX to $306 million, even though losing the NBA took 16 points off that growth rate. International streaming ad revenue rose 73% ex-FX. About 40% of global HBO Max subscribers were on the ad-supported tier at quarter end. Costs of revenues were flat and SG&A rose 14% ex-FX, mostly marketing for the new markets, so most of the extra revenue became profit. Adjusted EBITDA margin was nearly 17%. Neither the 10-Q nor the earnings release gives a total subscriber count, so revenue and profit are the numbers to follow.

Studios. Content revenue fell 41%. Theatrical revenue fell 46% against last year's three hits. Television revenue fell 45%, mainly because less content was licensed to WBD's own networks and HBO Max in the quarter due to renewal timing. That revenue is removed again at the consolidated level. Games revenue rose 45% on LEGO Batman: Legacy of the Dark Knight. Segment Adjusted EBITDA fell 89% to $96 million. Management's letter says some first-half films "fell short of our expectations." The 10-Q also mentions film impairments this quarter. An impairment is a write-down made when a film is expected to earn less than it cost. For the first half, Studios Adjusted EBITDA was $871 million, down 22%.

Global Linear Networks (cable TV). This is where the loss of the NBA shows up. The 10-Q puts the effect at $414 million of lost advertising revenue and $760 million of lower costs in the quarter. On those two lines alone, losing the NBA added roughly $346 million to profit. A smaller NBA-related drop in "other" revenue offset part of that. Even so, segment Adjusted EBITDA fell $66 million, or 4%, to $1,446 million. That means the business outside the NBA effect shrank by a few hundred million dollars. The main causes were a 10% drop in U.S. pay-TV subscribers, only partly offset by 1% higher fees per subscriber, and softer international advertising. The shareholder letter names Poland, Germany, the U.K. and Italy, where it says advertisers pulled back as the wars in Iran and Ukraine pushed up energy prices. The NCAA Final Four and championship game helped this year's quarter, adding about 4 percentage points to ad growth.

Takeaway: HBO Max's gain was real, but it was smaller than the other segments' losses. Streaming Adjusted EBITDA rose $219 million from a year earlier. Studios fell $767 million, and the networks fell $66 million even after dropping the costly NBA rights. The company's quarter now depends on the film slate and on how quickly cable declines, which the streaming business cannot yet offset.

Cash and debt

Free cash flow was $572 million, down from $702 million. That figure absorbed about $350 million of transaction-related payments tied to the Paramount deal, compared with about $250 million of such costs a year earlier. During the quarter WBD replaced the remaining $15 billion bridge loan with a $13 billion and a €1.7 billion seven-year term loan. It expects this to save about 1.5 percentage points a year in interest compared with the bridge. Net debt (debt minus cash) was about $29.7 billion, and net leverage was 3.4x, meaning net debt is 3.4 times a year of Adjusted EBITDA. Cash on hand was $3.37 billion.

Outlook

WBD did not give a numeric full-year forecast. What management did say:

• Streaming: it expects subscriber-related revenue growth to speed up in the second half and stay healthy into 2027. It keeps its long-term target of a 20%+ Adjusted EBITDA margin, but warns that margins will vary from quarter to quarter, including heavy marketing in Q4 for the Harry Potter series premiering on December 25.
• Studios: it still expects more than $3 billion of annual Adjusted EBITDA "in the medium to long-term." That compares with $871 million in the first half of 2026. The second-half film slate includes Dune: Messiah, Practical Magic 2, Digger and The Cat in the Hat.
• Global Linear Networks: it expects operating expenses to improve by a high-single-digit percentage for the full year, and says the decline in cable subscribers will continue.

Our view: The standalone business is getting easier to read. Streaming profit is rising, and the NBA savings will keep flattering linear costs through the next NBA season. The Studios target, though, needs the second-half films to perform much better than the first-half ones did. For shareholders, the more important factor is outside the income statement: the $31.00 cash offer from Paramount Skydance, plus a daily "ticking fee" if closing slips past September 30, 2026. That offer depends on the outcome of the antitrust lawsuit. If Paramount ends the deal over a failed regulatory approval, it owes WBD a $7.0 billion break fee. In some other termination scenarios, WBD could owe Paramount $3.0 billion and have to repay the $2.8 billion Netflix termination fee that Paramount paid on its behalf. Until the court rules, the quarterly results matter less to WBD's share price than the deal does.