Warner Bros. Discovery (NASDAQ:WBD) reported second quarter 2026 results on August 6, and the numbers landed while the company’s fate is tied up somewhere else entirely: a federal courtroom deciding whether its $31-per-share sale to Paramount Skydance can proceed. Anyone holding this stock right now is really holding two separate stories.
Bull Case: A Deal With Regulators Already On Board
The acquisition, agreed in February, values Warner Bros. Discovery at $81 billion in equity. Two of the three major hurdles are cleared. The Justice Department signed off in June, and the European Commission approved the deal on July 22, with the condition that Paramount unwind a European film distribution venture with Universal and avoid similar arrangements for a decade. On July 24, Paramount agreed the merger will not close before June 1, 2027, or five days after a court ruling, whichever comes first, a move Paramount called a significant win because it locks in a direct path to trial. There is also a built-in reward for patience. If the deal has not closed by September 30, shareholders start collecting a quarterly fee of 25 cents per share for every quarter it stays open, adding up meaningfully if the case drags toward its 2027 deadline. And if the deal somehow collapses, the underlying business does not vanish. Warner Bros. Discovery would still hold a major studio, HBO Max, and its networks, assets Netflix once had under a signed agreement of its own before Paramount’s all-cash bid won out in February.
Bear Case: Twelve States Standing In The Way
Twelve states, led by California, sued in mid-July, arguing the combination would reduce competition in film and raise consumer prices, with the Writers Guild of America filing a similar challenge. A federal judge has the merger frozen while the case proceeds, and the parties were due to propose a trial schedule by July 31. The operating business underneath this fight is not making the wait easy.
Second quarter total revenue fell 12% ex-FX to $8.7 billion, and content revenue dropped 26% ex-FX on weaker theatrical results at the Studios segment. Advertising revenue sank 22% ex-FX, as growth in ad-lite streaming subscribers was overwhelmed by the absence of the NBA and continued declines in linear audiences, with the NBA’s absence alone cutting 20 points off the ad growth rate. Net income available to shareholders was just $0.1 billion, weighed down by $1.1 billion in acquisition-related amortization, content fair value step-up, and restructuring charges. Total Adjusted EBITDA fell 6% ex-FX to $1.9 billion as declines in Studios and Global Linear Networks outweighed streaming growth, and net debt stood at $29.7 billion, a leverage ratio of 3.4x.
Funds Are Buying While Skeptics Stay Quiet
Hedge fund ownership rose from 86 funds in the prior quarter to 94 in the most recent one, a sign institutional conviction is building rather than fading. Short interest sits at just 2.60% of the float, which is a thin level of organized skepticism for a stock with an active antitrust trial hanging over it. That combination suggests the market is leaning toward the deal closing rather than bracing for a collapse.
Where This Leaves Shareholders
The tension here is straightforward even if the outcome is not. If the states lose their case, shareholders get $31 a share plus whatever ticking fee has accrued since September 30. If the states win, Warner Bros. Discovery reverts to standing on its own, with second quarter revenue down double digits and profitability still thin.
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