Paramount+ Sub Growth Remains Robust

Paramount PARA posted a decent start to an already turbulent 2022 as Paramount+ and Pluto delivered strong growth, with 6.8 million net subscriber additions and a 3.1 million increase in monthly active users, respectively. The growth at Paramount+ was impressive given the losses at Netflix this quarter. Total revenue fell slightly due to the tough comp against broadcasting the Super Bowl in 2021, but the firm’s direct-to-consumer, or DTC, growth engine expanded its top line by 82%, with strength in advertising and subscription. Paramount has debuted a new segment structure that separates its streaming efforts from the legacy networks and studios. We expect top-line growth over the near term to be driven mostly by the expansion of the firm’s DTC segment. We maintain our fair value estimate of $58.

Revenue declined 1% during the first quarter, as streaming growth was offset by declines in broadcast and filmed entertainment. DTC revenue jumped to $1.1 billion, with subscription revenue up 95% to $742 million and ad revenue improving by 59% to $347 million. Paramount+ benefited from the strong NFL playoffs along with the debuts of 1883, Halo, and the second season of Star Trek: Picard. Paramount+ now has 40 million subscribers and the firm now has over 62 million total DTC subscribers across services. Continued growth at Pluto and the June 2021 launch of Paramount+ Essential, a lower priced ad-supported tier, boosted the advertising growth.

While ad-supported tiers for subscription streaming services have gained media attention with the recent revelation that Netflix may enter the market, the completely ad-supported model like Pluto and the Roku Channel continue to gain users and improve monetization. Management noted 80% of Pluto viewers also pay for a streaming service. We view these channels as a secondary streaming source focusing on comfort programming as the services provide access to older but still popular library content and repackaged unscripted programming.