Disney, Paramount, Warner Bros. Discovery stocks experience rough May

Amid earnings reports and the ongoing writers' strike, media stocks struggled in the month of May. Yahoo Finance media reporter Allie Canal breaks down the stock performance of several media companies and what to expect going into the summer.

Video transcript

- It was a brutal month of May for media stocks from weaker earnings to a writers' strike that plagues the industry. But can investors expect any type of turnaround in June? Well, Yahoo Finance's Alexandra Canal joins us now. Allie, what did we see during May, and how does that set up for June now?

ALLIE CANAL: Yeah, the big question is, will we see some reprieve in June? If we take a look at how many of these prominent companies, especially these streaming facing companies performed, we saw Paramount, Disney, Warner Brothers Discovery, double digit declines over the month falling roughly 32%, 14%, and 17% respectively. Then, Comcast, which owns NBC Universal, that fell 6%.

And just to compare, the S&P 500 was relatively flat over the month. So this was not good. The one bright spot here was Netflix. That was able to eke out a nearly 20% gain as it rolled out its password sharing crackdown, which is a key revenue driver across the US and beyond. We also saw some positive data surrounding its ad supported tier last month.

But even Netflix, which has been the perceived leader in the streaming wars, it's going to battle a lot of noise moving forward, especially when it comes to potential churn, subscribers leaving the service due to that crackdown. And that's something that all of these companies are really facing right now. We've seen a ton of layoffs business restructurings in the name of profitability.

Along with that, content spending has slowed with MoffettNathanson predicting a flattening in 2023, which we have seen across the board. Netflix has been one of the most notorious spenders in the streaming wars. But even they said their content spending is going to be flat year over year at around $17 billion. They are reportedly looking to cut costs in other areas with The Wall Street Journal saying that they are looking to overall spending by about $300 million.

Still, I do want to call out this one chart from FactSet, which shows that even though Netflix might be pulling back on spending a little bit, it's still one of the only services to offer just a ton of content. That is upcoming summer releases. We've seen Netflix at a whopping 45 new releases this summer. In second place is Disney at 21.

So really, I don't think it's a total coincidence that Netflix has been the only streaming giant to really outperform for the month of May heading into the summer season due to that content spend. But really, a lot of risks overall for many of these media companies.

- Yeah, and not just a streaming giant just outperforming in general, because you compare that to a legacy company like Paramount, which continues to struggle and has had to do some consolidation-- I mean, they got rid of MTV News.

ALLIE CANAL: Yes.

- I never thought I would see that happen. I mean, look at that share price now. I mean, sure it's up today but down from some serious highs that it saw once upon a time.

Speaking of the larger landscape of media companies, we know they're still grappling with the writer's strike, and there is the potential for another strike, right? So there are certainly some headwinds. Is there any reason to be bullish about media companies?

ALLIE CANAL: Yeah, you're absolutely right. On the writers' strike, many of these leaders have said, look, we have enough content bank to weather the storm for now. But the longer it goes on, the more it could potentially impact the bottom line.

That being said, I do think there are reasons to be bullish. But investors are going to have to be really patient. A big driver here is advertising. That's something that I think a lot of investors are really optimistic about, these ad-supported tiers driving profitability.

I also think you're going to see a lot more bundling, which we've already seen in the market with Paramount Plus and Showtime, that combination, the HBO Max and Discovery Plus combo. And then, even Disney said it's going to be folding Hulu content into Disney Plus to eventually offer a one-app experience there. And that drives further customer value.

So analysts have by and large said they believe all these initiatives, all these restructurings. Everything that they're doing right now is going to pay off but down the line. So I've seen a lot of analysts telling their clients to really stay on the sidelines for some of these companies right now until they reach that streaming profitability. But again, just a big TBD heading into the summer.

- Right, exactly.

- Have to keep tabs on there. Yahoo Finance's Allie Canal.