Charter And Warner Bros. Deal: A Win-Win For Two Struggling Stocks?

(MENAFN- ValueWalk) Warner Bros. Discovery and Charter Communications Stocks are surging this week after the two companies struck a distribution deal.

Warner Bros. Discovery (NASDAQ:WBD) and Charter Communications (NASDAQ:CHTR) struck a distribution deal this week that moved both of these struggling communications stocks higher.

The deal brings Warner Bros. Discovery's Max streaming service, among other WBD properties, to Charter's Spectrum cable TV platform.

Previously, Max was considered premium content that required an extra monthly subscription fee. However, through this new deal, Max's ad lite service, which includes Max, HBO, and Discovery+ content, will be part of the Spectrum Select TV packages, available at no extra charge.

Spectrum already has similar deals with Disney+, Paramount+, ESPN+, AMC+, BET+ and Vix, providing content that would cost more than $60 per month separately.

While both stocks moved higher on the news, Warner Bros. Discovery had the bigger spike in price, rising some 13% since the deal was announced Thursday to over $8.20 per share. Charter stock is up about 5% to $345 per share.

The deal provided a nice lift for both Warner Bros. Discovery and Charter stocks, as both have been struggling.

Warner Bros. Discovery stock is down some 28% year to date and is coming off a second quarter where revenue dropped 6% year-over-year to $9.7 billion and the company posted a net loss of $10 billion. Revenue declined in all three of its businesses, including Studios , down 5% to $2.5 billion; Networks, down 8% to $5.3 billion; and Direct-to-Consumer streaming, down 2.6% to $2.6 billion.

The Networks business, which includes TNT, TBS, Discovery, CNN, HGTV, and the Food Network, among others, was hurt by a 9% increase in linear paid TV subscribers and a 9% drop in advertising revenue . The streaming business saw a 7% increase in subscribers but was hurt by a 70% decline in content revenue due to a lower volume of third-party licensing deals.

The deal with Charter should help in both Networks and DTC, said Warner Bros. Discovery CEO David Zaslav.

“This innovative partnership with Charter recognizes the value of our linear content and the investments we've made in premium original programming, sports and news, while also significantly expanding the distribution of Max's ad-supported service to Spectrum's millions of Select customers,” Zaslav said .

Charter stock is down 11% YTD, and its cable TV business has been losing subscribers, and revenue. In the second quarter , Charter's Video segment, which includes Spectrum cable, saw revenue fall 8% to $3.9 billion. The segment was hurt by a decline in video customers and a higher mix of lower priced video packages. The number of Video customers fell by 3% to 13.3 million.

This deal with Warner Bros. Discovery should help, as it is the first time Max and HBO content will be available within a cable package.

“The inclusion of the ad-supported version of Max and Discovery+ in our most popular packages at no additional cost ensures we provide the most value to our customers, particularly when combined with the utility of Xumo, which seamlessly integrates live linear, DVR and VOD, DTC, and SVOD content with unified search and discovery for the best overall customer experience,” Chris Winfrey, Charter president and CEO, said.

While both of these stocks rallied nicely on the news, I don't think either one is a particularly good buy right now.

Warner Bros. Discovery has made decent headway with its DTC business, but it is still consistently unprofitable overall, struggling with declining movie box office receipts, a drop in linear TV viewers, and the economics of making streaming consistently profitable.

Charter has the same challenges within its video segment, as it deals with cord cutters. Its mobile and internet businesses have performed a bit better, but its growth has been muted. Analysts give it a median price target of $350 per share, which is up about 2% from the current price.

Charter is probably the better option of the two, as the valuation is cheap, and it has broader revenue streams with its mobile and broadband internet businesses. But still, there are better options out there for investors.

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