While many company’s endured great existential crisis in the age of COVID-19, more then a few sectors thrived.
Services like Disney+ , Amazon Prime Video, YouTube, Netflix experienced record-breaking growth when Covid-19 shutdowns caused homebound consumers to turn to digital content and entertainment.
In fact it accelerated an already present trend that’s expected to expand at a compound annual growth rate (CAGR) of 21.0% from 2021 to 2028.
On this scene comes the merger of Warner Media with Discovery. It will house brands like HBO, Warner Brothers, CNN, TLC, HGN, Game of Thrones, Wonder Woman, Sesame Street, The Food Network, Eurosport, Harry Potter and the Olympics. All with a proposed spending out of the gate, around $20bn annually, which will rival what Netflix spends on content.
Out of that merger Discovery Inc. will own 29% of the shares.
Investment thesis
The positive trend for online content and the speculation of the merger drove a price rise of 298% from 19$ on October 2020 to 78$ in March of 2021.
And while this is the context, it’s not the full story . The important part is that retail traders get a chance to capitalize on this opportunity weeks after Archegos Capital was unable to meet a margin call from an investment bank and that bank began selling millions of shares of Viacom, Discovery, Baidu, and Other Shares.
Dumping millions of share in the market drove the price down to as low as 30$ as of this article, a deep 63% discount from the highs of 78$.
This in combination with the technical analysis of the price action (showing a deep correction with divergent RSI on the daily time frame) in an industry estimated to grow over the next 10 years provided the opportunity for both starting a stock position at the price of 30.24$ and buying leaps for 2023.
I will update this post upon closing the position.
