Why Discovery Communications Inc Stock Dropped Today

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What happened

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Shares of Discovery Communications Inc (NASDAQ: DISCK) sold off after the company said its subscriber loss accelerated, and also reported a lower profit than expected in its third-quarter earnings report. The stock closed down 10.1%. 

Revenue increased 6%, or 4% in constant currency, to $1.65 billion, slightly ahead of expectations at $1.64 billion, while adjusted earnings per share ticked up 8%, to $0.43, though that missed estimates at $0.54.

So what 

International growth was better than domestic growth, as sales outside the U.S. were up 11% compared to just 4% in the U.S. However, U.S. subscribers fell 5%, a sign that the company continues to suffer from the unwinding of the cable bundle. Advertising growth helped buffer the decline in subscribers.

CEO David Zaslav said: "Advertising and global distribution revenue growth helped to drive solid third-quarter results for Discovery. We continued to focus on investments to strengthen our worldwide IP portfolio, as well as strategic partnerships to nourish global superfans across every screen, platform and service."

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Now what

Management is hopeful that the upcoming merger with Scripps Network Interactive (NASDAQ: SNI) will boost its prospects. The stock is down 39% this year as growth has slowed, and it's missed earnings estimates three quarters in a row.

The deal with Scripps will give Discovery control of other "real-life" networks like HGTV and Food Network, and should provide management with more clout in negotiating with Pay-TV distributors, as well as help Discovery's channels, like Animal Planet and The Learning Channel, get into more bundles.

After the dip, Discovery shares are cheap at a price-to-earnings ratio (P/E) of less than 9. Revenue and profits are still growing, and if the company shows it has a strategy to grow in spite of cable's decline, the stock should bounce back.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Discovery Communications. The Motley Fool recommends Scripps Networks Interactive. The Motley Fool has a disclosure policy.