Warner's consolidated financial statements reshape performance! Hollywood super giant Skydance (SKYD.US) Q3 core streaming media revenue surges 21%, first half consolidated revenue doubles

According to Zhitong Finance APP, Hollywood giant Skydance (SKYD.US) saw its after-hours trading price weaken after releasing its latest earnings report, at one point dropping over 4%. The market seems to be reassessing the speed at which the Warner acquisition will deliver growth. Skydance stock rose 8.61% in regular US trading on Monday, closing at $8.70, but dropped more than 2% after the earnings release in after-hours trading. The earnings report shows that price increases and advertising monetization for Skydance's Paramount streaming have been effective, and the company has clarified its cost reduction plan through Warner integration. However, Warner’s release slate is lagging expectations, which could result in Q4 profits being up to $200 million less than previously expected. The first full-year guidance for the combined company will not be available until Q4 results are released. These factors provide a fundamental explanation for the retracement in share gains.

Earlier in early October, Paramount Skydance completed its massive $110 billion acquisition of Warner Bros. Discovery (WBD). The merged company was officially named "Skydance", marking the birth of a brand-new Hollywood giant.

The Q3 financial report covers Skydance’s original Paramount business up to September 30. The Warner Bros. Discovery (WBD) deal closed on October 6 and will be consolidated starting in Q4. On a comparable company basis, Q3 revenue was $7.025 billion, up 5% year-over-year, slightly below consensus of $7.070 billion by about $45 million. Adjusted EBITDA was $1 billion, up 0.3% year-over-year, with a profit margin of 14.2%. Operating profit was $368 million, net income attributable to shareholders was $73 million, and diluted EPS was $0.06. Adjusted EPS was $0.45, $0.32 above the FactSet market consensus of $0.13, and $0.27 higher than the higher Zacks consensus of $0.18.

In terms of cash flow, Skydance reported operating cash flow of $123 million and free cash flow of just $31 million, the latter figure already accounting for $174 million in restructuring, transaction, and transformation expenses. Management believes the original Paramount business is still on track to reach the upper end of its previous 2026 profit forecast, that is, around $3.9 billion in adjusted EBITDA.

The performance data show that Skydance's fastest-growing segment is content production and licensing, with the most significant monetization improvements seen in streaming. Production revenue was about $1.496 billion, up 23%, mainly benefiting from content licensing and third-party production, with adjusted EBITDA of $129 million. The direct-to-consumer (DTC) business brought in about $2.5 billion in revenue, up 11%, with adjusted EBITDA of $225 million.

Skydance's Paramount+ saw revenue grow 21% to $2.134 billion, with subscriptions rising 6% to 82.2 million. Average revenue per user (ARPU) increased about 14%, reflecting earlier price hikes and advertising growth. Traditional TV revenue was about $3.024 billion, down 7%, with advertising and distribution subscription revenues down 8% and 5% respectively. However, cost cutting helped record about $1.028 billion in adjusted EBITDA, with a margin of 34%. Streaming and production drove revenue growth; traditional TV still contributed most segment profits, a key metric for gauging transformation progress.

Paramount+ is Skydance’s core streaming platform. In Skydance’s Q3 report, DTC includes not only Paramount+, but also the free ad-supported streaming platform Pluto TV, and the Showtime pay cable TV business. Therefore, the 11% is the revenue growth rate for the entire DTC segment, while 21% is the individual revenue growth rate for Paramount+ alone.

The merger of two major studios amplifies IP library value and distribution power

The merged Skydance now operates three main businesses. The production business makes money via theatrical releases, content creation and licensing. The DTC segment generates subscription and advertising revenue through HBO Max, Paramount+, and Pluto TV. The TV segment relies on CBS, CNN, and sports channels for ad and distribution income.

With the Warner acquisition, Skydance has significantly expanded its IP library. Paramount already owns franchises such as "Mission: Impossible" and "Star Trek", while Warner brings in "Harry Potter", "Game of Thrones", and DC properties such as Batman and Superman. The combined film library exceeds 15,000 films. With two major Hollywood studios and proprietary streaming channels, Skydance is even more capable of competing with Disney and its peers in terms of content breadth, continuous content supply, and cross-channel monetization.

Latest financial results show Warner's contribution is becoming quantifiable. SEC pro forma financials show that, assuming the deal had been fully completed, revenue for the first half of 2026 would expand from the original Paramount’s $14.26 billion to a combined $31.648 billion, about 2.22 times greater. In Q3, DTC segment revenue on a combined basis grew 15%, with Paramount+, HBO, and HBO Max amassing about 203 million total subscribers (including duplicates).

Skydance plans to launch a bundled HBO Max-Paramount+ package at the start of 2027. Denser content supply is expected to reduce subscriber churn driven by completing popular single series, while also increasing ad inventory and cross-selling opportunities. Whether the bundle can raise per-household revenue and lower churn will determine how much profit can be generated from its content library scale.

$6 billion in synergy targets profits, $87 billion in debt tests cash flow

Skydance management expects the Warner acquisition to deliver at least $6 billion in annualized synergy within three years, with roughly 30% realized in year one and around 70% by the end of year two. Most of this will come from integrating headquarters, real estate, technology, and marketing costs. Following the deal and related financing, total debt stands at about $87 billion, with cash of about $10 billion.

Management also estimates one-time cash expenditure of about $4 billion across the entire transformation period, aiming to bring net leverage down to 3x by the end of 2029 and annual free cash flow above $10 billion by 2030. The revenue expansion from Warner will first show up in consolidated numbers, while shareholder returns will depend on how much cash remains for debt repayment after cost cuts and incremental streaming profits, net of interest and integration costs.

Wall Street ratings before the earnings release were already sharply divided. Citigroup rates the stock a Buy with a $10 target, JP Morgan upgraded to Hold with a $9 target, and Bernstein maintained Sell, cutting its target to $6. The Q4 release will be worth watching for the first consolidated 2027 guidance, streaming profit margin, and debt-reduction pace, providing the first full set of data to test whether the Warner acquisition can boost shareholder returns.