Warner Bros. Discovery, Inc.WBDNASDAQ

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $97.06 per share(market-calibrated)

+244.2%

Upside to Fair Value

Current

$28.20

Pure Model

$100.70

Fair Value

$97.06

Bull Case

$120.26

Bear Case

$81.30

Market Reality Check

Model Terminal Growth

3.00%

Market-Implied Growth

0.50%

Calibrated Growth

2.13%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $100.70.

What's Driving This Ratingfor WBD

✓

CapEx already efficient

CapEx at 2.60% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is -5.72% — below the sector mature average of 22.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $5.8B (12.92% margin).

→

Moderate revenue growth

Analyst consensus projects 0.62% revenue growth, fading to 3.00% by Year 10. Revenue reaches $45.1B (vs $37.3B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $84.88/share (16.1x terminal FCF) while exit multiple gives $116.52/share (25.0x terminal FCF). The 22x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.00% growth is more conservative. The base case averages both methods.

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 250bps below the model's 3.00%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 87.96% indicates efficient cash generation. FCF reaches $21.5B by Year 10 (47.73% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.68

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)12.04%

Cost of Debt

Pre-tax Cost of Debt5.37%

Tax Rate30.00%

After-tax Cost of Debt3.76%

Equity Weight (E/V)68.18%

Debt Weight (D/V)31.82%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (68.18% × 12.04%) + (31.82% × 3.76%)

= 9.40%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$37.5B	$39.0B	$39.9B	$41.6B	$45.1B
EBIT	-$2.1B	-$2.2B	-$2.3B	$1.8B	$5.8B
Tax	-$644M	-$669M	-$684M	$532M	$1.7B
NOPAT	-$1.5B	-$1.6B	-$1.6B	$1.2B	$4.1B
+ Depreciation	$15.5B	$16.1B	$16.5B	$17.2B	$18.7B
- Capex	$977M	$1.0B	$1.0B	$1.1B	$1.2B
- Δ NWC	$5M	$18M	$14M	$18M	$26M
Free Cash Flow	$13.0B	$13.5B	$13.8B	$17.3B	$21.5B
Discount Factor	0.914	0.764	0.638	0.533	0.407
Present Value	$11.9B	$10.3B	$8.8B	$9.2B	$8.8B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$21.5B

Terminal Growth Rate3.00%

WACC9.40%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$346.6B

PV of Terminal Value$141.1B

Exit Multiple Method

Year 10 EBITDA$24.5B

Exit Multiple (EV/EBITDA)22.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$539.0B

PV of Terminal Value$219.4B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$97.0B

PV of Terminal Value$141.1B

Enterprise Value$238.1B

(-) Net Debt$28.0B

Equity Value$210.1B

Shares Outstanding2.5B

Price per Share$84.88

Exit Multiple Method

PV of Projected FCFs$97.0B

PV of Terminal Value$219.4B

Enterprise Value$316.4B

(-) Net Debt$28.0B

Equity Value$288.4B

Shares Outstanding2.5B

Price per Share$116.52

Pure Model Fair Value

$100.70

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.00%	2.50%	3.00%	3.50%	4.00%
7.40%	$125.46	$129.78	$135.08	$141.74	$150.35
8.40%	$109.35	$112.14	$115.44	$119.41	$124.29
9.40%	$96.61	$98.51	$100.70	$103.27	$106.31
10.40%	$86.17	$87.51	$89.04	$90.79	$92.81
11.40%	$77.39	$78.37	$79.47	$80.71	$82.12

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$81.30

188.3% vs current

• -25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 2.09

Base Case

$100.70

257.1% vs current

• Analyst consensus
• Terminal growth: 3.0%
• Beta: 1.68

Bull Case

$120.26

326.5% vs current

• +25% vs analyst consensus
• Terminal growth: 3.5%
• Beta: 1.42

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Communication Services Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth0.62%

Year 3 Revenue Growth2.40%

Year 5 Revenue Growth1.81%

Year 7 Revenue Growth2.29%

Year 10 Revenue Growth3.00%

Terminal Growth Rate3.00%

Margin & Efficiency

Current EBIT Margin-5.72%

Terminal EBIT Margin22.00%

Tax Rate30.00%

Historical Capex / Rev2.60%

NWC / Revenue1.96%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 22x EV/EBITDA (Communication Services sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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