Paramount Earnings: Streaming Losses Will Still Increase in 2023 Despite Improvement

Paramount’s PARA direct-to-consumer segment posted strong top-line growth and slightly lower EBITDA losses in the second quarter as management continues to forecast peak streaming losses in 2023. Despite the DTC growth, total revenue fell 2% year over year due to the weak theatrical slate and the ongoing decline in TV ad revenue. The firm announced it has lined up a buyer for Simon & Schuster for $1.6 billion. We are maintaining our $25 fair value estimate.

The impressive 41% jump in DTC revenue was driven by growth in both advertising and subscription gains, though Paramount added only 700,000 net new subscribers. DTC subscription revenue jumped 47% while ad revenue continued its surprising improvement with 21% growth. Engagement growth at Pluto and Paramount+ offset advertisers’ uncertainty surrounding the economy as total viewing hours across both platforms expanded 35% year over year. Paramount expects further DTC ad revenue growth in the third quarter. Pluto is now available in 35 countries and management is looking to launch Paramount+ ad-supported plans internationally. The ad-supported expansion should help drive further growth in Pluto as the firm will be able to sell clients the ability to buy slots for a campaign across both platforms, similar to in the U.S.

While customer additions were soft during the quarter, Paramount+ has added 17.4 million subscribers over the last year, reaching 60.7 million globally, versus 17.7 million for Netflix. We expect that the ongoing Hollywood strike may weigh on subscriber growth for Paramount+ as the service is more dependent than its competitors on broadcast network shows that typically launch new seasons in the fall. Management remains positive about the decision to merge Showtime into Paramount+ as it expects higher engagement and lower churn. However, the company took a $649 million programming write-off charge in the quarter, bringing the total programming charge related to the combination to $2.4 billion.