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Discovery edges past quarterly revenue estimates on ad strength

Discovery Inc (DISCA.O) beat Wall Street expectations for third-quarter revenue on Wednesday, driven by higher advertising and distribution revenue as the company looks ahead to its proposed merger with AT&T Inc’s (T.N) WarnerMedia unit.

Revenue rose about 23% to $3.15 billion in the quarter ended Sept. 30, slightly above an estimate of $3.14 billion, according to Refinitiv data.

Total paid streaming subscribers globally stood at 20 million at the end of the third quarter, up from 17 million in the previous quarter and 18 million that the company had announced in early August. That figure includes subscribers to the Discovery+ streaming service launched in January, the company said.

Advertising revenue rebounded after a pullback due to the pandemic, and was up 28% internationally from the same period last year. Both domestic and international distribution revenue were also up from a year ago, driven by Discovery+.

The owner of Animal Planet and TLC is gearing up to combine with AT&T’s WarnerMedia unit to create a new media business, seeking scale to take on streaming rivals such as Netflix Inc (NFLX.O) and Walt Disney Co (DIS.N). The deal is expected to close in the middle of next year.

In a call with investors on Wednesday, Chief Executive Officer David Zaslav said Discovery sees free cash flow on track to exceed $2.1 billion for the full year, and expects net leverage at the close of the WarnerMedia deal to be at or below 4.5 times, versus 5 times it estimated in its guidance in May.

Zaslav will lead the proposed new company, named Warner Brothers Discovery. On Wednesday he said that Kevin Mayer, Disney’s former head of direct-to-consumer and international, is joining the company as a consultant. Mayer will advise on windowing strategy, “about how different pieces of content, whether it’s movies, perform,” Zaslav said.

Excluding onetime items, Discovery earned 24 cents per share, below estimates of 41 cents.

Reporting by Eva Mathews in Bengaluru and Helen Coster in New York; editing by Arpan Varghese and Jonathan Oatis

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