Discovery Communications Inc., half-owner of Oprah Winfrey’s cable network OWN, fell the most in six months as profit fell short of analysts’ projections following more losses at the fledgling cable channel.
The shares dropped 6.1 percent to $50.80 at the close in New York, as Discovery reported it assumed 100 percent of the losses at OWN in the first quarter. The drop was the steepest since Nov. 9. The stock has gained 24 percent this year.
OWN: Oprah Winfrey Network has struggled to attract viewers since its debut last year. As of the first quarter, accumulated losses amount to more than the $273 million Discovery Health channel the company contributed to the venture and Winfrey’s own investment, according to a statement today. Bloomberg reported last week OWN may have registered losses of as much as $330 million since its inception.
“The company needs to provide investors with a road map for this business,” said Paul Sweeney, senior analyst with Bloomberg Industries. “Specifically, how long will they stomach these losses before they make a serious change in strategy?”
First-quarter net income dropped 28 percent to $221 million, or 57 cents a share, from $305 million, or 74 cents, a year earlier, Silver Spring, Maryland-based Discovery said. Analysts predicted profit 60 cents, the average of 24 estimates in a Bloomberg compilation.
This year, Discovery began recording 100 percent of the losses at OWN in its “other expense, net” section. Those expenses rose to $50 million from $7 million a year earlier, Discovery said, without providing further details.
OWN may break even at the cash flow level in the second half of next year, Discovery Chief Executive Officer David Zaslav said on a conference call today.
“We remain confident in the growth potential of this network,” Zaslav said.
Revenue for the quarter rose 16 percent to $1.1 billion, exceeding analysts’ estimate of $1.06 billion. In last year’s first quarter, Discovery had a one-time gain of $102 million after converting Discovery Health to OWN. Excluding that, profit advanced 8.9 percent for the most recent quarter.
Discovery gets about half of revenue from fees paid by cable- and satellite-TV providers and has recently seen new revenue from deals with online distributors such as Netflix Inc. and Amazon.com Inc. Viewership growth across the U.S. networks delivered a 13 percent increase in ad revenue to $329 million. Distribution fees advanced 23 percent to $337 million.
Ad increases were among the highest in the industry so far this quarter, according to Sweeney.
The company raised its full-year revenue forecast to as much as $4.65 billion, compared with a previous maximum of $4.58 billion in February. Analysts anticipated $4.56 billion.
The company also increased its share buyback program by $1 billion, to $3 billion. During the quarter, Discovery repurchased 6.9 million shares of its Series C stock for $288 million.