Skydance stock down almost 10% after two days amid concerns over $80bn debt

Skydance’s stock price has fallen by almost 10% since the newly formed media giant launched on the New York Stock Exchange on Tuesday.

David Ellison

After opening at US$9.84 per share on Tuesday morning, the stock dropped roughly 2.5% by the end of the day and a further 6.7% on Wednesday, ending the day at US$8.89.

The relatively sharp share price drop reflects investor concerns over the huge US$80bn debt load Paramount-Skydance assumed to finance the controversial deal to merge with Warner Bros Discovery, with the combined entity now known as Skydance.

There are also ongoing concerns that Skydance’s primary method of tackling the debt – its sizeable portfolio of cable networks and broadcaster CBS – is declining in profitability.

If Skydance’s management can keep cable profits steady, analysts believe the company has a chance to make the numbers work. But if those cable profits continue their sharp decline of recent years, there are genuine concerns around how the company can manage the debt, particularly if streaming profits do not fill the gap in relatively short order.

Carrying massive amounts of debt is nothing new for Hollywood studios, particularly Warner Bros Discovery, which had around US$53bn when it formed in spring 2022. By the end of the last quarter, the debt had been reduced to around US$32bn, though the company cut thousands of jobs over four years to get there.

Skydance’s debt is of a different magnitude, however, and almost all decisions the company makes, particularly in the next couple of years, will be made through the prism of reducing its leverage.

Skydance CEO and chairman David Ellison and co-CEO Ynon Kreiz acknowledged the situation on Tuesday, but said they were confident in the company’s ability to manage the debt while investing meaningfully in content.

According to Skydance, the combined company will have an annual spend of US$30bn to US$40bn.

Kreiz told a press conference on Tuesday: “There’s a complete financial envelope to how we’re going to run the business.” He said Skydance would reduce the debt in line with its stated projections.

Kreiz added: “It’s all part of a multi-year plan that will drive growth, expansion and increase cash flow over time, [and] that will allow us to bring debt down, improve our leverage ratio and continue to run the business for long-term growth.”