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Why Did Discovery’s Stock Price Drop on February 18?

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Discovery Communications in 4Q15 and 2015

Discovery Communications (DISCA) announced its 4Q15 and 2015 earnings on February 18, 2016, and reported revenues of $6.4 billion for 2015, which was up by 2% on a YoY (year-over-year) basis. Discovery’s revenues for 2015 were in line with consensus Wall Street analyst estimates, and the company saw an adjusted OIBDA (operating income before depreciation and amortization) of $2.4 billion, which represents a YoY fall of 4%.

Discovery reported a diluted EPS (earnings per share) of $1.58 compared to a diluted EPS of $1.66 per share for 2015, which fell short of consensus Wall Street analyst estimates of $1.65 per share in fiscal 2015.

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For 4Q15, Discovery saw revenues of $1.64 million, which represents a decline of 2% over 4Q14 but was in line with consensus Wall Street analyst estimates. The company saw adjusted OIBDA of $574 million for the quarter, which represents a YoY decline of 10%. The company had a diluted EPS of $0.34 per share in 4Q15, which fell short of consensus Wall Street analyst expectations of $0.41 per share.

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Discovery missed Wall Street analyst expectations because foreign exchange rate fluctuations had an adverse impact on the company’s performance. The company’s share price fell by 4% on February 18, the day it announced its earnings.

Negative impact of strong US dollar

Discovery’s international networks made up around 50% of the company’s total revenues in 4Q15 and 2015, and so adverse currency fluctuations negatively impacted Discovery’s revenues in 4Q15 and 2015 by 8% and 2%, respectively.

In 2015, adverse exchange rate fluctuations also affected other media companies like Twenty-First Century Fox (FOXA) and News Corp (NWSA). For FOXA, adverse foreign exchange rate fluctuations impacted revenues by 3%, and News Corp’s revenues were negatively impacted by $141 million from foreign currency exchange rate fluctuations in fiscal 2Q16. IBM’s (IBM) revenue and EPS felt the burn of the rising dollar (UUP) on a YoY basis in 4Q15 as well, dropping by 8.5% and 14%, respectively.

Discovery makes up 0.08% of the PowerShares QQQ Trust Series 1 ETF (QQQ). QQQ also has 4.9% exposure to the television space.

Now let’s look at analyst recommendations for Discovery Communications after 4Q15.

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