Paramount: Lowering Fair Value by 29% on Increasing Doubts About Ability To Compete in Streaming

After taking a deeper look at the streaming marketplace and Paramount’s PARA place in it, we have become increasing skeptical about the company’s prospects in this hypercompetitive industry. While Paramount+ has gained traction, the company’s streaming division will post peak losses in 2023, with breakeven unlikely to occur until 2026 or beyond. As a result, we are lowering our fair value estimate to $25 per share from $35.

We also now expect weaker results at the linear network segment. Given the secular decline in the pay-TV subscriber base, the increased amount of content on Paramount+, and pay-TV weakness in many international markets, we now estimate affiliate revenue to be just below flat annually over the next five years versus 2% growth previously. As a result of the weaker estimated audience and some cannibalization from Pluto and the ad-supported tier at Paramount+, ad revenue now drops by 2% annually versus 1.4% previously.