Discovery, Inc. Series A (DISCA, Financial)
Discovery stock benefited during the first quarter from the launch of Discovery+ and the company's new focus on digital direct-to-consumer content delivery. Since its debut in January, Discovery+ has already gained over 12 million paid subscribers thanks to its unique portfolio of unscripted content that enjoys worldwide recognition. Its main channel is one of the most widely distributed networks in the world and reaches more than 220 countries. Discovery is hoping to draw this large audience into Discovery+ to help offset continued declines in traditional TV subscriptions. Discovery has been working to expand their reach internationally to help diversify their revenue generation and protect against short-term disruptions. Currently, the company generates about 36% of its revenue from international markets. Management plans to continue investing into Discovery+ to scale up as they aim to shift their revenue mix towards their direct-to-consumer streaming products. Archegos Capital Management, through the use of synthetic derivatives called "total return swaps," was able to apply up to five to one leverage against their portfolio. Their highly levered buying contributed to the huge gain for Discovery in the quarter, but margin calls subsequently led to forced liquidations of the stock. While Discovery has solid and improving fundamentals, the extreme hidden leverage of Archegos has contributed to extraordinary volatility. This shows the importance of knowing what you own, what it is worth and the impact of forced debt liquidations.
From Jeff Auxier (Trades, Portfolio)'s Auxier Asset Management first-quarter 2021 commentary.
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