Shares of Skydance fell over 8% during Tuesday’s trading session as Wall Street digested the David Ellison-led media giant’s third-quarter earnings, which came in lower than expected, and guidance for the combined company.

The latest report did not include Warner Bros. Discovery’s full financials since the merger with Paramount did not close until the fourth quarter. As a result, many analysts are taking a wait and see approach despite the company’s streaming and studios growth on the Paramount side of the business.

“While Skydance is executing well against their prior Skydance/Paramount merger, we believe the company remains in the early innings of a multi-year transformation, as it shifts from a linear-dominated business toward Streaming and Studios,” Bank of America analyst Jessica Reif Ehrlich said. “These are significant undertakings especially for a new management team. Between combining two studios, merging streaming businesses, rationalizing costs and technology integration, there is a lot of heavy lifting to be done. As we have seen from prior mergers, it takes time before companies can recognize the full benefits of a large-scale media merger.”

Bernstein analyst Laurent Yoon added that the quarter’s results were “more of a prologue than Chapter 1 of Skydance’s journey following the WBD acquisition.”

“Pro forma financials with WBD won’t be available until sometime before the fourth-quarter print, leaving us on the edge of how this story could unfold. There are more questions than answers, but we come out net positive,” Yoon said. “The raw ingredients are there to build something better than the individual parts. And we wait for Chapter 1.”

TD Cowen analyst Doug Creutz remains skeptical that Skydance management will be able to create value from the merger when “so many other major media deals have failed,” citing the “high” integration and leverage risks associated with the combination.

Ehrlich and Yoon both have an underperform rating on the stock and price targets of $9 and $6 per share, respectively. Creutz has a hold rating on the stock and a price target of $8 per share.

Despite the limited insight into the Warner Bros. side of the business, David Ellison and Ynon Kreiz did share new details about Skydance’s cost-cutting plans across areas including real estate, labor, technology, marketing and procurement as it looks to generate at least $6 billion in savings.

“In theory, savings in these areas should get the company to its synergy targets without dipping into its $30+ billion of content spending, allowing it to pay down debt without sacrificing growth,” MoffettNathanson analyst Robert Fishman said. “However, as we’ve seen with other media M&A, it is a lot harder to see these cost savings translate into real upside to EBITDA and cash flows likely forcing the company to limit its content spend growth in the future.”

Skydance also revealed that it would launch a Paramount+-HBO Max bundle in early 2027 and that the two services would be merged onto the same backend within the first year of closing.

“While we continue to believe the purported backend technology synergies could lower DTC operating expenses and drive margin expansion, we remain cautious on the segment’s revenue trajectory without a more detailed understanding of the unification plans, including pricing strategy and potential cannibalization from subscriber overlap,” Fishman added.

Additionally, the company revealed it would incur $1.5 billion to $2 billion in costs in 2027 and $4 billion over the course of its transformation as it looks to achieve its cost savings and bring its leverage target down to 3x by 2029.

“These costs will continue to weigh on the company’s ability to generate cash, with 2027 free cash flow expected to come in at or above breakeven, making it more difficult for Skydance to accelerate any debt paydown in the near term,” Fishman warned. “Although Skydance continues to target $10 billion of annual free cash flow by 2030, we believe the execution risk of an underperforming content slate, unexpected pressure on the linear portfolio or higher-than-expected DTC cannibalization makes such a steep ramp much more challenging.”

MoffettNathanson maintained a neutral rating and has a $7 price target on the stock.

Guggeinheim analyst Michael Morris said that the market has heard Skydance’s strategy, but needs evidence of progress in three areas: a content slate that bolsters confidence in consumer demand for core franchises, the net financial impact of combining HBO Max and Paramount+ and management of the declining but cash generative linear business.

He also said that breakeven free cash flow in 2027 will put meaningful debt reduction in 2028 and 2029. Morris argued that asset sales would speed up Skydance’s return to investment grade status and its ability to reach its leverage target.

The company has nearly $80 billion in net debt and roughly $87 billion in gross debt. Skydance executives said they do not need to do asset sales or raise additional equity to reach their leverage targets, but noted they would review their portfolio and be “opportunistic” about monetizing non-core assets.

Guggeinheim maintained its neutral rating, but has no price target on the stock due to “the lack of historical pro forma disclosure and no third-quarter operating results for legacy Warner Bros. Discovery.”

Skydance shares are down 28.4% in the past six months and 40% year to date.

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