Warner Bros. Discovery (NASDAQ: WBD) has had a challenging run this year. Formed from the merger of WarnerMedia and Discovery in spring 2022, the media company has focused on slashing debt, reducing its headcount, and trimming its content offerings. Yet, despite the stringent cuts, Warner Bros. Discovery's stock price has sunk more than 50% since the beginning of 2022. Now there are signs things could get even worse.

A recent lawsuit filed in Illinois accuses the company of presenting improper sign-up figures for its streaming platforms. The Collinsville Police Pension Board (CPPB) alleges Warner Bros. Discovery, which claims more than 92 million subscribers, has inflated the number by as much as 10 million. Lawyers for the CPPB say Warner Bros. Discovery has incorrectly counted customers of AT&T -- WarnerMedia's previous owner -- who were given access to HBO Max yet actually never logged in.

The merits of the lawsuit are still to be worked out, and so it would be presumptive to say Warner Bros. Discovery is in any real trouble here. Yet, should a judge allow the class action suit to move forward, then Warner Bros. Discovery may be forced to reveal information about how it counts subscribers -- precise details it has not previously shared in a public arena. Such exposure may present a reason for some investors to be wary of Warner Bros. Discovery's reported figures until the company proves its innocence.

Continue reading

Source Fool.com