Skydance shares fell more than 8% during Tuesday’s trading session as Wall Street digested the David Ellison-led media giant’s third-quarter earnings — which came in below expectations — and forecasts for the combined company.
The latest report did not include Warner Bros.’ full financial statements. Discovery since the merger with Paramount was not finalized until the fourth quarter. As a result, many analysts are taking a wait-and-see approach despite the company’s growth in streaming and studios on the Paramount side of the business.
“While Skydance is performing well compared to its previous Skydance/Paramount merger, we believe the company is still in the early stages of a multi-year transformation as it moves from a linear-dominant business to streaming and studios,” said Bank of America analyst Jessica Reif Ehrlich. “These are big projects, especially for a new management team. Between merging two studios, merging streaming businesses, streamlining costs and integrating technology, there’s a lot of work to be done. As we’ve seen with previous mergers, it takes time before companies can understand the full benefits of a large-scale media merger.”
Bernstein analyst Laurent Yoon added that the quarter’s results were “more of a prologue than Chapter 1 of Skydance’s journey after the WBD acquisition.”
“Pro forma financials with WBD won’t be available until some time before the fourth quarter release, which leaves us on the fence about how this story might play out. There are more questions than answers, but we come away net positive,” Yoon said. “The raw materials are there to build something better than the individual parts. And we’re waiting for Chapter 1.”
TD Cowen analyst Doug Creutz remains skeptical of Skydance management’s ability to create value through the merger when “so many other major media deals have failed,” citing the “high” integration and leverage risks associated with the combination.
Both Ehrlich and Yoon have an underperform rating on stock and price targets of $9 and $6 per share, respectively. Creutz has a hold rating on the stock and a price target of $8 per share.
Despite a limited preview from the Warner Bros. side. of the business, David Ellison and Ynon Kreiz shared new details on Skydance’s cost-cutting plans in areas including real estate, labor, technology, marketing and procurement, as they seek to generate at least $6 billion in savings.
“In theory, savings in these areas should allow the company to achieve its synergy goals without dipping into its $30 billion in content spending, allowing it to pay down debt without sacrificing growth,” said Robert Fishman, an analyst at MoffettNathanson. “However, as we’ve seen with other media M&A, it’s much harder to see these cost savings translating into real EBITDA and cash flow upside, which will likely force the company to limit its content spending growth in the future.”
Skydance also revealed that it would launch a Paramount+-HBO Max package in early 2027 and that the two services would be merged onto the same backend within the first year after the shutdown.
“While we continue to believe that purported back-end technology synergies could reduce DTC operating expenses and drive margin expansion, we remain cautious about the segment’s revenue trajectory without a more detailed understanding of unification plans, including pricing strategy and potential cannibalization due to subscriber overlap,” Fishman added.
Additionally, the company revealed that it would incur costs of between $1.5 billion and $2 billion in 2027 and $4 billion during its transformation, as it seeks to achieve cost savings and reduce its debt target to 3x by 2029.
“These costs will continue to weigh on the company’s ability to generate cash, with free cash flow in 2027 expected to meet or exceed break-even, making it more difficult for Skydance to accelerate its near-term debt repayment,” Fishman warned. “While Skydance continues to target $10 billion in annual free cash flow by 2030, we believe the execution risk of an underperforming content slate, unexpected linear portfolio pressure, or higher-than-expected DTC cannibalization makes such a steep ramp much more difficult.”
MoffettNathanson maintained a neutral rating and has a $7 price target on the stock.
Michael Morris, an analyst at Guggeinheim, said the market has heard Skydance’s strategy but needs evidence of progress in three areas: a content slate that builds confidence in consumer demand for core franchises, the net financial impact of combining HBO Max and Paramount+, and management of the declining but cash-generating linear business.
He also said the free cash flow breakeven in 2027 would result in significant debt reduction in 2028 and 2029. Morris argued that the asset sales would accelerate Skydance’s return to investment status and its ability to achieve its financial leverage target.
The company has net debt of nearly $80 billion and gross debt of approximately $87 billion. Skydance executives said they did not need to sell assets or raise additional capital to meet their leverage targets, but indicated they would review their portfolio and be “opportunistic” about monetizing non-core assets.
Guggeinheim maintained his neutral rating, but does not have a price target on the stock due to “the absence of historical pro forma disclosure and the absence of third quarter operating results for the former Warner Bros.” Discovery.”
Skydance shares are down 28.4% over the past six months and 40% year to date.
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