Lights, Camera, Elon…

Hollywood has never been particularly shy about spending money.

Big productions. Bigger acquisitions. And occasionally, a bill that makes the movie budget look rather modest.

Skydance ($SKYD) has been getting acquainted with that last part.

The media company recently completed its combination with Warner Bros. Discovery, bringing Paramount, HBO, CNN, CBS and Warner Bros. under one roof.

Quite the entertainment empire.

But putting it together came with a substantial price tag.

And lately, investors haven’t been particularly enthusiastic about the stock.

Which means Skydance SKYD ( ▲ 3.47% ) could certainly use a familiar face with deep pockets.

According to Semafor, Musk has reportedly invested $1 billion in the company.

Not a bad name to have on the shareholder list.

And… Citi resumed coverage with a Buy rating and a $10 price target.

A billionaire investor. A favorable analyst rating. Not a bad week on paper.

The stock’s reaction Monday afternoon?

Down roughly 6%.

So why is Skydance struggling to win over investors, even with some rather influential names behind it?

Let’s dig in. ⇩

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You Scratch My Back…

Hollywood has always been a business of relationships.

And few come with quite as many zeros as the friendship between Elon Musk and Larry Ellison.

Back in 2018, Ellison bought 3 million Tesla shares and joined the company’s board.

Four years later, he committed $1 billion to help finance Musk’s $44 billion Twitter acquisition.

Apparently, billionaire friendships come with rather generous lending limits.

Now the money may be flowing in the other direction.

According to Semafor, Musk reportedly invested approximately $1 billion in Skydance, the media empire run by Larry’s son, David Ellison.

The investment hasn’t been publicly confirmed by Musk or Skydance, and the terms remain unclear.

But there’s another possibility making the rounds.

Media veteran John Malone recently predicted that SpaceX could invest between $8 billion and $10 billion in Skydance, potentially alongside a global content-distribution agreement.

That’s Malone’s prediction, mind you. No such deal has been announced.

Still, the relationship has come quite a long way.

→ 2018: Ellison invests in Tesla.
→ 2022: Ellison helps finance Musk’s Twitter acquisition.
→ 2026: Musk reportedly invests $1 billion in the Ellison family’s media venture.

Quite the expensive exchange of favors.

But there’s a reason Skydance could use some additional financial support.

Behind its collection of famous Hollywood brands sits a debt pile that makes even $1 billion look rather modest. ↓

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And the Bill Goes To…

A billion dollars sounds like a lot of money.

✱ Until you see Skydance’s balance sheet.

Following its combination with Warner Bros. Discovery, the media giant is carrying approximately $80 billion in debt.

Yes, billion. Again.

And putting this Hollywood empire together required some rather serious financing.

→ $47 billion: Raised through new equity issued at $12 per share.
→ Approximately $52 billion: Raised through debt financing for the merger.
→ $80–82.5 billion: Reported total debt following the combination.

Now consider Musk’s reported investment.

$1 billion represents just 1.2% of Skydance’s roughly $82.5 billion debt burden.

! Of course, that doesn’t mean his investment is being used to repay debt. The terms haven’t been disclosed.

But it puts the size of the company’s financial obligations into perspective.

And management has quite a few plans for bringing those obligations down.

→ $6 billion: Targeted annual cost savings from combining the businesses.
→ 3.0×: Target net leverage by the end of 2029 — net debt relative to annual adjusted earnings before interest, taxes, depreciation and amortization (EBITDA).

The plan relies on integrating operations, eliminating overlapping expenses and generating enough cash to reduce debt over time.

A perfectly reasonable ambition.

And that’s going to take considerably more than a billion-dollar check.

Skydance now has some of Hollywood’s biggest names under one roof.

The challenge?

Getting them to earn their keep. ↓

Too Many Stars, One Studio……

Skydance certainly hasn’t been shopping small.

Following its Warner Bros. Discovery acquisition, the company now controls some of the biggest names in entertainment.

→ Television: CBS, CNN, HBO and major cable networks.
→ Film studios: Paramount Pictures and Warner Bros.
→ Streaming: Paramount+ and HBO Max.

! Quite the collection.

And according to management, the combined business generates nearly $70 billion in annual revenue.

That’s more than enough to make Skydance one of the largest media companies in the world.

But owning two entertainment empires is one thing.

Getting them to operate as one is another.

David Ellison has outlined an ambitious plan to bring the businesses together.

→ Streaming: Combine Paramount+ and HBO Max into a platform with more than 200 million subscribers.
→ Cost savings: Target $6 billion annually, with roughly one-third expected in the first year.
→ Growth: Aim for mid-single-digit annual revenue growth while expanding the studios and streaming operations.

The savings are expected to come from combining operations, technology and overlapping expenses.

In other words, fewer separate systems doing the same jobs.

Sounds straightforward.

Although anyone who’s tried merging two streaming watchlists might appreciate the administrative challenge.

And there’s another complication.

Not every part of Skydance’s entertainment empire is growing at the same pace. ↓

Not Quite a Box Office Hit…

Famous brands don’t automatically produce impressive earnings.

And Skydance’s latest results offer a useful reminder.

Before the Warner Bros. Discovery acquisition closed, Paramount Skydance reported $6.9 billion in quarterly revenue.

! Up just 1% from a year earlier.

Not exactly a blockbuster opening.

But the individual businesses tell a more interesting story.

→ Streaming: Revenue rose 9% to $2.5 billion.
→ Film studios: Revenue climbed 16% to $1.3 billion.
→ Traditional television: Revenue fell 9% to $3.2 billion.

Two businesses growing. One heading in the opposite direction.

Meanwhile, the earnings picture wasn’t particularly flattering.

→ Earnings per share: $0.04.
→ Wall Street expected: $0.11.

Of course, these figures cover the quarter ended June 30, before the Warner Bros. deal closed. They don’t represent the newly combined company’s performance.

But they help explain the challenge facing David Ellison.

Skydance needs its growing streaming and studio businesses to deliver while managing pressure in traditional television.

And it needs to do that while integrating another media empire and working toward billions in promised cost savings.

A rather ambitious sequel.

Wall Street has been reviewing the script.

And the critics aren’t exactly unanimous.

Two Thumbs Up?

Here’s the latest scorecard:

→ Citi: Buy, with a $10 price target. The firm expects Skydance’s cost-cutting efforts to pay off.
→ JPMorgan: Neutral, with a $9 target. It sees opportunities in streaming and operational savings, but recently lowered its target from $14.
→ Barclays: Underweight, with a $7 target.
→ Bernstein: Underperform, with a $6 target, citing substantial execution risks.

That’s a $4 difference between the highest and lowest targets in this group.

And the broader analyst community isn’t exactly lining up for opening night.

According to an October 23 analyst tally:

→ 4 analysts: Buy.
→ 10 analysts: Hold.
→ 9 analysts: Sell.

The disagreement largely comes down to how successfully Skydance can integrate its businesses, deliver promised savings and reduce debt.

And investors won’t have to wait too long for another update.

November 9 is the company’s scheduled earnings date, its first since the Warner Bros. acquisition closed.

The numbers may not settle every argument.

But they’ll give the critics something new to review.

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