Paramount Global’s Earnings Reflect Challenges Amid the Streaming Era

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Paramount Global, which has long been rumored to be up for sale, continued to navigate the challenges of balancing a rapidly growing but unprofitable streaming business with its traditional television and movie assets in late 2024.

The company’s fourth-quarter results, released Wednesday evening, underscore the difficulties faced by traditional media firms as they seek to transition from cable and movie theater models to direct-to-consumer streaming services in the digital age.

Paramount reported $7.6 billion in revenue for the last quarter of 2024, down from $8.1 billion in the same period a year earlier, falling slightly short of Wall Street’s average expectation of $7.8 billion. The company posted a loss of 2 cents per share in the fourth quarter, compared to an 8-cent profit in the previous year, and slightly worse than the analyst consensus forecast of a 1-cent loss. However, adjusted earnings per share (EPS) showed a profit of 4 cents.

Adjusted operating income before depreciation and amortization (Oibda), which is the profit measure preferred by Paramount management, was $520 million, marking a 15% decline from $614 million in the same period last year.

Paramount has been the subject of significant merger speculation in recent months. Various reports have suggested that Warner Bros. Discovery, Allen Media Group, and Skydance Media have all shown interest in acquiring the company or its parent company, National Amusements, which is controlled by the Redstone family. However, as of now, no deal has materialized.

Paramount’s shares have experienced significant volatility over the past four months, fluctuating from $11 to $17 and back again, driven by the ebb and flow of merger rumors.

Despite the turbulence in its stock price, Paramount’s streaming segment has shown impressive growth, with revenue surging by 34% to $1.9 billion compared to the same period last year. The company’s flagship streaming service, Paramount+, has reached 67.5 million subscribers, including 4.1 million added in the last quarter and 11.6 million over the past year.

However, this rapid subscriber growth has not yet translated into profitability for Paramount. The streaming segment reported an adjusted Oibda loss of $490 million in the fourth quarter, an improvement over the $575 million loss recorded in the same period a year earlier. Despite this progress, Paramount recorded an adjusted Oibda loss of $1.7 billion for its streaming business for the full year of 2023, showing only a slight improvement over 2022.

Management remains optimistic about the future, stating that streaming losses are expected to narrow further in 2024. They anticipate that Paramount+ will achieve profitability in the United States by 2025.

The rapid yet unprofitable growth seen in Paramount’s streaming segment may not be as highly valued by investors in the current environment of higher interest rates compared to a few years ago when growth-at-any-price stocks were favored.

This sentiment is particularly pronounced when the streaming business is juxtaposed with declining profits from traditional sources such as cable TV and movies, which Paramount relies on to offset streaming losses until profitability is achieved. Paramount’s largest segment, TV media, experienced a significant decline in revenue, dropping by 12% to $5.2 billion, while adjusted Oibda also fell by 12% to $1.1 billion. This decline was attributed to flat affiliate fee revenues, a 15% decrease in advertising revenue, and a 25% decrease in licensing revenue.

The outlook for Paramount’s movie segment appeared even bleaker, with revenue plummeting by 31% to $647 million and adjusted Oibda falling by 63% to $24 million.

Overall, Paramount faces a balancing act between diminishing profits from traditional sources and narrowing losses in its streaming business, with profitability on the horizon. However, for shareholders, a potential sale of the company may offer the most favorable outcome. The uncertainty lies in the valuation at which such a sale would occur.

Paramount’s stock has faced significant challenges, losing 48% over the past year, including a notable 28% drop in May following a dividend cut aimed at conserving cash. Recent cost-cutting measures, including job cuts, have underscored the company’s efforts to navigate its financial challenges.

Analysts’ sentiments toward Paramount are lukewarm, with only 26% holding a Buy or equivalent rating on the stock, compared to 39% with a Sell rating. This contrasts with the average stock in the S&P 500, which typically has around 55% Buy ratings.

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