Warner Bros. Discovery's (WBD) stock price fell as much as 12% in early trading on Thursday after the company reported disappointing second quarter earnings on Wednesday that missed expectations on both the top and bottom lines.

The company took a massive $9.1 billion impairment charge related to its TV networks unit following the loss of a key media rights deal with the NBA. The company filed a lawsuit against the league over what it said was the NBA's "unjustified rejection" of the company's matching rights proposal.

Including an additional $2.1 billion in costs related to its merger, the company took an $11.2 billion hit in write-downs and charges last quarter. Additionally, the company reversed earlier profit trends in its streaming business despite adding nearly 4 million subscribers in the quarter, while its linear TV unit continued to deteriorate.

Wall Street analysts on Thursday weighed in on the report, with at least one suggesting it's "unlikely" things can get worse for the media giant.

KeyBanc analyst Brandon Nispel, who has an Overweight rating on shares, said the company's studios business will likely perform better in 2025 compared to 2024 while streaming can continue to offset accelerated linear network declines.

Warner Bros. Discovery CEO David Zaslav maintained on the company's earnings call that profitability within its streaming unit will be positive in the second half of the year with "even greater subscriber growth" in the current quarter and "at least" $1 billion in segment EBITDA in 2025.

Still, Zaslav pointed to shifting industry dynamics as a key catalyst for the impairment charge, telling investors on the call, "It's fair to say that even two years ago, market valuations and prevailing conditions for legacy media companies were quite different than they are today. This impairment acknowledges this and better aligns our carrying values with our future outlook."

WBD CFO Gunnar Wiedenfels added the second quarter saw a "number of triggering events, including the difference between our current market cap and the book value of the company, the continued softness in the US ad market and uncertainty related to affiliate and sports rights renewals, including the NBA."

"While I am certainly not dismissive of the magnitude of this impairment, I believe it's equally important to recognize that the flip side of this reflects the value shift across business models and our conviction and confidence in the growth and value opportunity across studios and our global direct to consumer business," he said.

Revenue for the quarter came in at $9.7 billion, missing Bloomberg consensus expectations of $10.12 billion and a 6% drop from the $10.36 billion seen last year.

The company reported an adjusted loss per share of $4.07, compared to a loss of $0.51 in the year-earlier period and below consensus estimates for a loss of $0.21, due to the impairment charge.

Free cash flow, which served as a bright spot in the first quarter, bucked that trend this time around. The metric dropped 43% year over year to $976 million and also missed Bloomberg consensus expectations of $1.2 billion.

The company's direct-to-consumer (DTC) streaming business served as a bright spot in the quarter. It added 3.6 million Max subscribers amid the debut of "House of the Dragon" Season 2. This was ahead of Bloomberg consensus expectations of 1.89 million and also ahead of the 1.80 million subs added in Q2 2023.

Streaming advertising revenue jumped to $240 million, beating Bloomberg estimates of $191 million and up 98% from the $121 million the company reported in the year-ago period. The DTC division, however, posted a loss of $107 million after reporting a profit in the first quarter.

Future unclear amid linear struggles

In its latest media rights negotiations, the NBA passed on WBD in favor of two newcomers: tech giant Amazon (AMZN) and Comcast's NBCUniversal (CMCSA). The league was able to strike a new rights agreement with its other current media partner, Disney (DIS). WBD's current rights will expire at the end of next season.

Analysts have warned the loss of these rights will impact the future success of its streaming service Max and will likely quicken the demise of its linear networks, which are already in free fall.

Network advertising revenue tumbled by 10% in Q2 from the year-earlier period. The company reported network ad revenue of $2.21 billion, missing Bloomberg expectations of $2.26 billion.

That pressured second quarter EBITDA, with full-year adjusted EBITDA now at risk of falling below $10 billion, according to the latest Bloomberg estimates. That's $4 billion below what analysts had expected at the time of the merger.

Rumors have swirled about the company's next move, with Bank of America analysts laying out possible strategic options in a recent report that could include a split of the company's digital streaming and studio businesses from its legacy linear TV unit.

Management skirted around the topic of a split during the earnings call but did seem to acknowledge that it has been discussed.

"This is a public company. We're all very well aware of our responsibility to have a view on whatever strategic options are out there," Wiedenfels said. "We are very clearly focused on evaluating everything beyond just running the operational business."

Still, the company said it's been operating under the "one Warner Bros. Discovery strategy for the past two and a half years ... and every day we’re seeing the benefits.”

Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at [email protected].

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