Company Reports

Like peers, Paramount has been in a period of transition and facing significant uncertainty about how and whether the traditional linear television business will co-exist or evolve in a media environment dominated by streaming services. Based on its current state, we think the company has the right strategy for streaming and advantages related to distribution and content ownership that will enable it to successfully manage the industry’s evolution.

Paramount’s first quarter was very good, especially in terms of profitability. However, performance is an afterthought. On a 10-minute earnings call, management briefly outlined financial results and took no questions. We don’t expect Paramount, as currently constituted, to operate independently for much longer.

Steep declines in no-moat Paramount Global’s fourth-quarter sales and adjusted EBITDA were unsurprising as the firm faced the same environment as peers in its traditional linear television and licensing businesses. A very weak television advertising market and the lack of new shows resulting from the actors and writers strikes exacerbated the ongoing decline in pay-TV subscribers for all network owners. However, news on the direct-to-consumer segment, which includes the Paramount+ streaming service, was universally positive, though vague. We think the company is on the right track and remains materially undervalued relative to our unchanged $20 fair value estimate.

Like peers, Paramount has been in a period of transition and facing significant uncertainty about how and whether the traditional linear television business will co-exist or evolve in a media environment dominated by streaming services. Based on its current state, we think the company has the right strategy for streaming and advantages related to distribution and content ownership that will enable it to successfully manage the industry’s evolution.

Like peers, Paramount has been in a period of transition and facing significant uncertainty about how and whether the traditional linear television business will co-exist or evolve in a media environment dominated by streaming services. Based on its current state, we think the company has the right strategy for streaming and advantages related to distribution and content ownership that will enable the firm to successfully manage the industry’s evolution.

Paramount derives a durable competitive advantage from the CBS broadcast network, a valuable portfolio of cable networks with worldwide carriage, production studios, and a deep content library. Given our overarching premise that the value of high-quality content will continue to increase, the production studios are among the firm's most attractive assets.

Paramount’s direct-to-consumer streaming business underpinned the firm’s excellent third-quarter sales and profits, and it buoyed market enthusiasm for the segment. Most important, management now expects that peak DTC operating losses, which have heavily weighed on firmwide margins, occurred in 2022 and will continue improving from here. It’s much too early to declare success for Paramount’s streaming business, but we believe the cloud that has been overshadowing the firm’s value is starting to lift. We’re maintaining our $25 fair value estimate and think the stock is undervalued.

Paramount derives a durable competitive advantage from the CBS broadcast network, a valuable portfolio of cable networks with worldwide carriage, production studios, and a deep content library. Given our overarching premise that the value of high-quality content will continue to increase, the production studios are among the firm's most attractive assets.

Paramount’s 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.

After taking a deeper look at the streaming marketplace and Paramount’s 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.

Formed via the reunion of Viacom and CBS, the rebranded Paramount derives a durable competitive advantage from the CBS broadcast network, a valuable portfolio of cable networks with worldwide carriage, production studios, and a now deeper content library. Given our overarching premise that the value of high-quality content will continue to increase, the production studios are among the most attractive assets of the reunited firm.

Paramount’s direct-to-consumer efforts continue to pay off in terms of subscriber additions, but DTC segment losses continued to mount in the first quarter. The quarterly dividend was cut to $0.05 from $0.20, providing $500 million in annual “savings.” This money will not be allocated to increased content spending but rather to gain financial flexibility and is a direct consequence of Paramount lagging peers in shifting its focus to profitability from DTC customer growth at all costs. Paramount also took a $1.7 billion noncash programming charge related to the plan to integrate Showtime into Paramount+. We are lowering our fair value estimate to $35 from $40 to account for weaker margins at all three segments.

Formed via the reunion of Viacom and CBS, the rebranded Paramount derives a durable competitive advantage from the CBS broadcast network, a valuable portfolio of cable networks with worldwide carriage, production studios, and a now deeper content library. Given our overarching premise that the value of high-quality content will continue to increase, the production studios are among the most attractive assets of the reunited firm.

Formed via the reunion of Viacom and CBS, the rebranded Paramount derives a durable competitive advantage from the CBS broadcast network, a valuable portfolio of cable networks with worldwide carriage, production studios, and a now deeper content library. Given our overarching premise that the value of high-quality content will continue to increase, the production studios are among the most attractive assets of the reunited firm.

Paramount+ reported its strongest performance yet, adding 9.9 million net new subscribers during the fourth quarter, raising its total to 56 million. However, the losses at Paramount’s direct-to-consumer, or DTC, segment continue to mount during and the firm posted a free cash flow loss of $500 million for the full year. While subscriber growth remains a focus, the streaming service will see price increases in the U.S. and select international markets, with the Premium tier (soon to be combined with Showtime) rising to $12 per month from $10 and the Essential (ad-supported) tier increase by $1 to $6 per month. Even with the new focus on revenue, management continues to expect to burn cash once again in 2023 before generating free cash flow in 2024.

Paramount reported mixed third-quarter results, but underlying ad revenue weakness does not bode well for the near future. Total ad revenue fell 2% as expected declines at the traditional linear business overwhelmed surprisingly anemic growth at the direct-to-consumer, or DTC, segment. Even with the growth in affiliate and subscription fees, advertising still represented roughly 37% of revenue over the last 12 months. For 2023, we expect that a continued advertising slowdown along with cord-cutting, currency headwinds, and the loss of political ad revenue will drag down ad revenue at both the linear and DTC segments. We still project low-single-digit top-line growth over the near term, driven mostly by the expansion of the firm’s DTC segment which will continue to burn cash through 2025. We are lowering our fair value estimate to $45 from $58 to account for lower ad and subscription growth along with a slower path to DTC breakeven margins.

Formed via the reunion of Viacom and CBS, the rebranded Paramount derives a durable competitive advantage from the CBS broadcast network, a valuable portfolio of cable networks with worldwide carriage, production studios, and a now deeper content library. Given our overarching premise that the value of high-quality content will continue to increase, the production studios are among the most attractive assets of the reunited firm.

Paramount reported a strong second quarter as revenue and adjusted EBITDA both came in ahead of FactSet consensus. Despite worries about the streaming ecosystem, Paramount+ and the other direct-to-consumer, or DTC, platforms posted strong growth after accounting for the shutdown of operations in Russia. While the international rollout of Paramount+ has attracted more subscribers and driven top-line growth, these efforts have predictably widened the losses at the DTC segment. We still expect revenue growth over the near term to be driven mostly by the expansion of the firm’s DTC segment, which will continue to burn cash. We keep our $58 fair value estimate.

Paramount 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.

Formed via the reunion of Viacom and CBS, the rebranded Paramount derives a durable competitive advantage from the CBS broadcast network, a valuable portfolio of cable networks with worldwide carriage, production studios, and a now deeper content library. Given our overarching premise that the value of high-quality content will continue to increase, the production studios are among the most attractive assets of the reunited firm.