Warner consolidation reshapes performance! Hollywood super-giant Skydance (SKYD.US) Q3 core streaming revenue surges 21%, first-half combined revenue doubles

After Hollywood super-giant Skydance (SKYD.US) released its latest earnings report, its after-hours trading price trended weak and at one point fell more than 4%, as the market appeared to be reassessing how quickly Warner merger-related growth would materialize. Skydance shares rose 8.61% in Monday's regular U.S. trading session to close at $8.70, and fell more than 2% after hours following the earnings release. The earnings data showed that price increases and advertising monetization at Skydance's Paramount streaming unit were paying off, and the company also clarified its cost-reduction path for the Warner integration, but the release of Warner's film slate fell short of expectations, potentially reducing fourth-quarter profit by as much as $200 million versus prior expectations, while the first full-year guidance for the combined company will have to wait until the fourth-quarter report. These details provided a fundamental explanation for the pullback in gains. Earlier, in early October, Paramount Skydance completed its massive $110 billion acquisition of Warner Bros. Discovery (WBD), and the combined new company was officially named "Skydance," marking the birth of a brand-new Hollywood giant. The third-quarter earnings cover the legacy Paramount Skydance business for the period ended September 30. Warner Bros. Discovery (WBD) closed on October 6 and will only be consolidated starting in the fourth quarter. On a company-comparable basis, third-quarter revenue was $7.025 billion, up 5% year over year, slightly below the consensus estimate of $7.070 billion by about $45 million; adjusted EBITDA was $1 billion, up 0.3% year over year, with a margin of 14.2%. Operating income was $368 million, net income attributable to shareholders was $73 million, and diluted earnings per share were $0.06. The company's adjusted earnings per share were $0.45, $0.32 above the market consensus of $0.13 shown by FactSet, and $0.27 above the higher-level consensus estimate of $0.18 shown by Zacks. In terms of cash flow data, Skydance's operating cash flow was $123 million, while free cash flow was only $31 million, the latter already including $174 million in restructuring, transaction and transformation expenses. Management judged that the legacy Paramount business is still expected to reach near the upper end of its previous 2026 earnings outlook, namely $3.9 billion in adjusted EBITDA. The earnings data showed that Skydance's fastest-growing segment was content production and licensing, while the most obvious monetization improvement was in streaming. The production business generated revenue of about $1.496 billion, up 23%, mainly benefiting from content licensing and third-party production, with adjusted EBITDA of $129 million. Direct-to-consumer (DTC) revenue was about $2.5 billion, up 11%, with adjusted EBITDA of $225 million. Skydance's Paramount+ revenue grew 21% to $2.134 billion, subscribers rose 6% to 82.2 million, and average revenue per user (ARPU) increased about 14%, reflecting earlier price increases and advertising growth. Traditional television revenue was about $3.024 billion, down 7%, with advertising and distribution subscription revenue falling 8% and 5%, respectively, but cost reductions supported adjusted EBITDA of about $1.028 billion and a margin of 34%. Streaming and production drove revenue, while traditional television still contributed the most segment profitthis is key to judging the pace of the transformation. Paramount+ is the core streaming platform under Skydance. In Skydance's third-quarter report, DTC includes not only Paramount+ but also the free ad-supported streaming platform Pluto TV and the Showtime-related pay cable channel business. Therefore, 11% is the revenue growth rate for the entire DTC business segment, while 21% is the revenue growth rate for the Paramount+ platform alone. Two super studios merge, and the IP library begins to amplify distribution value The combined Skydance has three businesses. The production business makes money through theatrical distribution, content production and licensing; the DTC business generates subscription and advertising revenue through HBO Max, Paramount+ and Pluto TV; and the television business relies on CBS, CNN and sports channels for advertising and distribution revenue. Skydance under the Warner acquisition significantly thickened its IP library. Paramount already had franchises such as "Mission: Impossible" and "Star Trek," while Warner brought IP including "Harry Potter," "Game of Thrones" and DC's Batman and Superman. The combined film library exceeds 15,000 movies, and with two Hollywood studios and owned streaming channels, Skydance is better positioned to compete with peers such as The Walt Disney Company in content breadth, sustained supply and cross-channel monetization. The latest earnings data show that the revenue contribution from Warner can already be quantified. SEC pro forma financial data show that, on a basis assuming the transaction had been fully completed, first-half 2026 revenue expanded from $14.260 billion for legacy Paramount to $31.648 billion for the combined company, about 2.22 times the original level. On a combined basis, third-quarter DTC revenue grew 15%, and Paramount+, HBO and HBO Max together have about 203 million subscribers, including duplicate subscriptions. Skydance plans to launch a bundled package of HBO Max and Paramount+ in early 2027. A denser content supply is expected to reduce subscriber churn caused by the end of any single hit series, while also increasing advertising inventory and cross-selling opportunities. Whether the bundle can raise revenue per household and lower churn will determine how much profit content scale can . $6 billion in synergies target profit, while $87 billion in debt tests cash flow Skydance management expects the Warner acquisition to deliver at least $6 billion in annualized synergies within three years, of which about 30% is expected to be achieved in the first year and about 70% by the end of the second year, mainly from integrating headquarters and real estate, technology and marketing expenses. After closing and related financing, total debt is about $87 billion and cash is about $10 billion. Management also expects one-time cash expenditures of about $4 billion during the entire transformation period, with the goal of reducing net leverage to 3x by the end of 2029 and achieving annual free cash flow of more than $10 billion in 2030. The revenue expansion brought by Warner will first be reflected in consolidated figures, while shareholder returns will depend on how much cash is left for debt repayment after cost reductions and incremental streaming profit, after interest and integration expenses. Wall Street ratings before the earnings report already showed clear divergence. Citi gave a Buy rating and a $10 price target, JPMorgan upgraded to Hold with a $9 price target, and Bernstein maintained Sell and cut its price target to $6. What is worth tracking in the fourth-quarter report is the first post-merger 2027 guidance, streaming margins and the pace of debt reduction; they will provide the first complete set of data to test whether the Warner acquisition can enhance shareholder returns.