Warner Bros. Discovery is hyping free cash flow. Investors don't appear to be buying it

Listening to Warner Bros. Discovery Chief Executive Officer David Zaslav speak on Friday's fourth-quarter earnings calls, I couldn't help but think of a scene in the movie "Office Space."

An employee named Tom meets with two consultants, both named Bob (together, The Bobs), who have been tasked with deciding which employees at the company should be promoted or fired.

When The Bobs press Tom on what he does at the company after they don't initially understand, Tom snaps, screaming, "I have people skills! I am good at dealing with people! Can't you understand that?! WHAT THE HELL IS WRONG WITH YOU PEOPLE?!"

Warner Bros. Discovery investors are The Bobs, Chief Executive Officer David Zaslav is Tom and the disconnect he's worked up about is free cash flow.

Warner Bros. Discovery on Friday said it generated $3.3 billion in free cash flow during the fourth quarter and ended the year with $6.2 billion in free cash flow, up 86% from a year prior. Yet it missed analyst estimates for revenue and profit, and its shares fell 10%.

For more than year, Zaslav has repeatedly told the investment community that his priority is to boost free cash flow to improve the health of the company and to pay down debt. Warner Bros. Discovery has paid down $12.4 billion in debt in less than two years since announcing the merger of Discovery and WarnerMedia.

He led with that message again on Friday during his company's earnings conference call.

"Our top priority this year was to get this company on solid footing and on a pathway to growth, and we've done that," Zaslav said. "We said we'd be less than four-times levered, and we are. We're now at 3.9 times and expect to continue to delever in 2024. We've significantly enhanced the efficiency of the organization with a long runway still to go. We said we were going to generate meaningful free cash flow. ... And we've exceeded our goal with $6.2 billion for the year."

Warner Bros. Discovery's board of directors has been so intent on boosting cash that it last year changed Zaslav's compensation to tie his bonus to cash flow generation.

So, why did the shares slump Friday, down now 45% in the past 12 months?

Perhaps investors didn't like the company's wishy-washy answer on free cash flow generation in 2024, fearing the positive momentum there could be short-lived.

CFO Gunnar Wiedenfels refused to give guidance, citing the company's unknown earnings performance with the vicissitudes of the advertising market and increased content spend on Max now that strikes by Hollywood writers and actors are over.

But it's more likely, given the stock's consistent underperformance in the past year, that investors simply don't care about free cash flow in the way Zaslav wants them to. (Remember, that Netflix fairly recently tried, and failed, to refocus investor sentiment onto its preferred metrics. Shares only started rising when Netflix returned to subscriber growth, from which Netflix tried to redirect.)

Legacy media needs a growth narrative. It's needed one for the past year. Cutting spending, trashing films, licensing programming to Netflix, laying off employees, saving money because of strikes — these aren't growth stories.

If earnings and revenue miss estimates, and if the company isn't adding tens of millions Max subscribers, there's not all that much for shareholders to get excited about.

Zaslav's argument is his company's balance sheet must be in good shape before growth can begin. But it's unclear where that growth will occur. Boosting free cash flow and paying down debt may make Zaslav richer, but they're not clear catalysts for multiple expansion for a company saddled with slowly dying cable networks and associated declining advertising revenue.

Just because Zaslav wants investors to focus on free cash flow instead of metrics like streaming service subscriber additions, profit and revenue doesn't mean they'll listen.

Just because a worker says he's a people person doesn't make him a people person, no matter how many times, or how loudly, he repeats it.

WATCH: Investors are surprised by Warner Bros. Discovery's lack of full-year guidance