Newly-formed streaming giant Warner Bros. Discovery (WBD) officially began trading on the Nasdaq (^IXIC) on Monday, opening at $24.08 a share in its first day as a publicly-traded entity.
Ahead of the company's Wall Street debut, Evercore ISI Group upgraded the stock from In-line to Outperform, announcing a $40 price target.
The $43 billion merger, which closed on Friday, solidifies Discovery CEO David Zaslav's position as the company's new chief. WarnerMedia CEO Jason Kilar departed upon the deal's closing.
"I am confident that our collective energy and genuine love for these businesses and brands will build the world's most dynamic media and entertainment company," Zaslav wrote in an employee memo, cited by CNN.
Zaslav went on to say that Warner Bros. Discovery is "well positioned to become a top-tier streaming competitor," as the company looks to compete with established players in the space from Netflix (NFLX) and Disney+ (DIS) to Apple TV+ (AAPL) and Amazon Prime Video (AMZN).
AT&T (T) shares began Monday's session in the green (up roughly 4%). Shareholders of AT&T hold 71% of the new company. Discovery shareholders hold the remaining 29%.
"This is going to be the most exciting story in the sector for the next few years," Jessica Reif, research analyst at Bank of America, previously told Yahoo Finance.
"If you step back, this is probably going to be the broadest offering the market has yet to see," Reif stated, emphasizing the immense advertising potential that could result, in addition to the company's ability to optimize content spend, increase marketing efficiency and reduce churn.
The analyst referenced the elevated scripted content of WarnerMedia's HBO — from cultural success "Game of Thrones" to the more recent phenomenon "Mare of Easttown" — along with Discovery's quirky, cult-favorite programs, such as "Dr. Pimple Popper" and "90 Day Fiancé."
WarnerMedia also has lucrative development deals with high-profile creatives, including "The Batman" director Matt Reeves, "The Sex Lives of College Girls" creator Mindy Kaling, "Insecure's" Issa Rae, and many more.
"[HBO Max] is at the very beginning of its growth curve," Reif continued, noting the streaming service has been "on fire," despite increased competition in the space.
As of the end of 2021, HBO and HBO Max have a combined subscriber count of 73.8 million. Comparatively, Discovery last reported 22 million subs.
'Is this a business?'
As investors begin to shift focus away from subscriber growth, Reif predicted that business operations and profitability will be key variables for shareholders moving forward.
"'Is this a real business?' 'Can you make money?' Can you offset the declines in the legacy business?'" the analyst said, reiterating her belief that Warner Bros. Discovery has "the best set of assets" to not only help offset declines in the secular business but also expand "into the next growth curves of streaming."
Still, execution remains a top challenge amid new management and restructuring woes. In addition to Kilar, the company laid off other key executives, including Warner Bros. chief Ann Sarnoff and HBO Max head Andy Forssell.
Profitability will also be in focus as investors zoom in on earnings potential and the business impact on EBITDA and free cash flow.
Geetha Ranganathan, senior media analyst at Bloomberg Intelligence, told Yahoo Finance that, "Investors are still worried about how the profit numbers are going to shake out and whether [Warner Bros. Discovery] will be able to deliver on their free cash flow target," which is roughly $8 billion by 2023.
HBO Max alone is likely to generate about $1.5 billion in EBITA loss, the analyst said.
"At the end of the day, the HBO Max / Discovery product is going to be in the top four streamers, along with Disney, Netflix, and Amazon Prime," Ranganathan predicted, although she cited "some short term pain" when it comes to the profitability of free cash flow.
Alexandra is a Senior Entertainment and Food Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193
Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, YouTube, and reddit