Does large-cap Cable Television company Warner Bros. Discovery have a sustainably profitable business model? By studying its gross margins and comparing them to its operating margins, we can gain insight into quality of its business. With gross margins at 39.6%, you might be telling yourself the Warner Bros. Discovery is profitable -- but there is more to the story.
Gross margins take into account only the cost of revenue, meaning the expenses directly related to each sale. So it's important to also look at operating margins, which take into account overhead costs. One way to look at it is that gross profit gives insight into Warner Bros. Discovery's market and the viability of its business model. Operating margins, on the other hand, show you how efficiently the company is implementing this business model.
| Date Reported | Revenue ($ k) | Cost of Revenue ($ k) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 33,817,000 | 20,442,000 | 39.55 | -36.31 |
| 2021-12-31 | 12,191,000 | 4,620,000 | 62.1 | -2.71 |
| 2020-12-31 | 10,671,000 | 3,860,000 | 63.83 | -2.89 |
| 2019-12-31 | 11,144,000 | 3,819,000 | 65.73 | n/a |
Warner Bros. Discovery's gross margins are currently in the green, but this might not be the case for long. Since its cost of revenue is growing at a rate of 52.1% compared to 32.0% for its revenues, its gross margins have been shrinking -11.9% on average each year.
| Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 33,817,000 | 16,871,000 | -10.34 | -163.91 |
| 2021-12-31 | 12,191,000 | 5,598,000 | 16.18 | -36.75 |
| 2020-12-31 | 10,671,000 | 4,081,000 | 25.58 | -10.65 |
| 2019-12-31 | 11,144,000 | 4,135,000 | 28.63 | n/a |
Despite the negative operating margins in the last year, Warner Bros. Discovery's average is still positive, indicating that the company is generally profitable. There's a red flag, however, indicating that the last year could be part of a negative trend. Warner Bros. Discovery's operating expenses are growing at an average rate of 42.1%, whilst its revenues are growing at only 32.0%.
