Discovery: Can Succeed On Its Own In D2C
Apr. 23, 2021 12:34 PM ETDiscovery, Inc. (DISCA), DISCK4 Comments2 Likes
Summary
- Discovery is a leader in real life entertainment on linear TV and other formats, across a wide range of niches.
- Despite the lower cost of its content, its 55,000+ episode library provides critical mass in its niches, which would be difficult to surpass and helps create some moat.
- As a complementary service, Discovery can succeed on its own in D2C. This should improve its position in advertising and as an acquisition target.
- Competition has always existed in the unscripted space. Others are expanding in it, but the global opportunity is large.
Investment Thesis
Discovery Inc. (DISCA) (DISCB) (DISCK) excels at sticky content in a wide range of niches that resonate with fans and super-fans. Its strong free cash flow, history of buybacks, and strong brands have been pointed out numerous times on SA. However, its inexpensive valuation has reflected concerns about Discovery's ability to thrive with D2C, as cable TV continues to decline in popularity.
Based on its critical mass of real-life entertainment, Discovery has a stronger hand than commonly assumed. I expect that it can successfully make the transition to D2C, as a service that is highly differentiated and complementary. This should improve its position in advertising and as an acquisition target, and its market valuation.
Overview
A lot of bullish SA articles on Discovery have already pointed to its strong free cash flow, buybacks, favourable comps to peers, and strong brands. After the Archegos debacle, Discovery shares aren't that much higher than pre-Covid levels -- so I'll mostly try to avoid re-hashing the same arguments. But here are a few of the many other worthwhile articles about Discovery:
