Paramount Earnings: Despite Improvement, There Will Still Be Streaming Losses In 2023
Maintaining our $25 fair value estimate for Paramount stock.
Paramount Global Stock at a Glance
- Fair Value Estimate: $25.00
- Morningstar Rating: 4 stars
- Morningstar Uncertainty Rating: Very High
- Morningstar Economic Moat Rating: Narrow
Paramount Global Earnings Update
Paramount Global’s PARA direct-to-consumer segment posted strong top-line growth and slightly lower EBITDA losses in the second quarter, while management continues to forecast peak streaming losses in 2023. Despite the DTC growth, total revenue fell 2% year over year due to the studio’s weak theatrical slate and an 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 for Paramount stock.
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 for Pluto TV and Paramount+ offset advertiser uncertainty around 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 TV 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 TV, as the firm will be able to sell clients the ability to buy slots for a campaign across both platforms, as it does currently in the United States.
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 new subscribers for Netflix. We expect the ongoing strikes in Hollywood may weigh on subscriber growth for Paramount+, as the service is more dependent than competitors on broadcast network shows, which 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.
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