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Paramount Shares Fall 29% YTD: How Should Investors Play the Stock?
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Paramount Global (PARA - Free Report) shares have declined 28.6% year to date (YTD), underperforming the broader Zacks Consumer Discretionary sector’s appreciation of 3.5%.
Over the same time frame, shares of Netflix, Fox and Walt Disney have gained 48.2%, 41.5% and 4%, respectively. The industry has appreciated 4.4% YTD.
PARA shares’ underperformance can be attributed to lower top-line growth due to lower licensing revenues, sluggishness linear advertising market and lower linear affiliate revenues. In the first half of 2024, revenues declined 3% over the year-ago period to $14.5 billion. While licensing & other revenues fell 27%, theatrical revenues dropped 19%.
Paramount expects licensing revenues (15.4% of first-half 2024 revenues) to decline modestly in 2024 despite growing in the second half of 2024.
In the advertising business, it expects direct-to-consumer (D2C) advertising growth in the third quarter of 2024 to be similar to that of the second quarter of 2024. D2C advertising revenues grew 16% year over year in the reported quarter driven by higher viewing hours of Paramount+ and Pluto TV with simultaneous growth in CPMs.
Paramount’s decision to exit Showtime Sports at the end of 2023 is expected to negatively impact TV Media affiliate revenue growth modestly on a sequential basis in the third quarter of 2024.
Paramount expects significant growth in total OIBDA for 2024 and free cash flow to grow compared to 2023.
Can Paramount+ Aid PARA’s Prospects?
Paramount+ continues to be a driving factor for the company’s subscription revenue growth. Although the service ended the second quarter of 2024 with 68.4 million subscribers, down 2.8 million sequentially, Paramount expects it to report net subscriber growth in the second half of 2024. It also expects normal international subscriber growth for the rest of this year.
Higher price due to domestic price increases is expected to drive up the average revenue per user for Paramount+. Charter is the first U.S. MVPD to make the ad-supported tier for Paramount+ available to basic cable subscribers with no incremental cost.
A strong content slate for Paramount+ is a key catalyst. The launch of new seasons of Taylor Sheridan’s hit series Tulsa King in September, Lioness in October and the new series Landman in November are noteworthy. Series finales of Evil and SEAL Team expands content portfolio.
Showtime’s portfolio expands with George Clooney’s The Agency and the return of Dexter: Original Sin.
Paramount expects Paramount+ to post a domestic profit in 2025.
Earnings Estimate Revision Shows Downward Trend for PARA
The Zacks Consensus Estimate for third-quarter 2024 earnings is currently pegged at 19 cents, down 20.8% over the past 30 days and indicates 36.67% year-over-year decline.
The consensus mark for third-quarter 2024 revenues is pegged at $7.03 billion, indicating a year-over-year decline of 1.44%.
For 2024, the Zacks Consensus Estimate for revenues is pegged at $29.78 billion, indicating modest year-over-year growth of 0.43%.
The consensus mark for earnings is pegged at $1.57 per share, down by a penny over the past 30 days. However, it indicates year-over-year growth of 201.92%.
Will Skydance Media Transaction Aid PARA’s Top Line?
PARA is set to acquire Skydance Media, and the transaction is expected to conclude in the first half of 2025.
Under the terms of the agreement, Skydance will merge with Paramount in an all-stock transaction that values Skydance at $4.75 billion, creating a company with an enterprise value of $28 billion. The deal also includes an offering of $4.5 billion in cash or stock to shareholders and providing an additional $1.5 billion for Paramount's balance sheet.
PARA and Skydance merger is part of Paramount’s strategic plan to reduce its $14 billion debt by leveraging Skydance’s financial and technological resources with PARA’S IP and movie library.
Paramount’s 2025 revenue is expected to reach $32.6 billion on a pro forma basis, and 2027 revenues are expected to rise 2% to $33.5 billion.
Further, Paramount expects to generate $500 million of annual cost savings through its initiatives to streamline the organization. It expects to incur restructuring charges between $300 million and $400 million in the third quarter of 2024 related to the streamlining process.
PARA – To Buy, Hold or Sell?
PARA shares are currently undervalued, as suggested by a Value Score of A.
However, weakness in licensing, theatrical and advertising revenues is expected to hurt top-line growth in the near term.
PARA currently has a Zacks Rank #3 (Hold), which implies that investors may want to wait for a more favorable entry point to accumulate the stock.
Image: Bigstock
Paramount Shares Fall 29% YTD: How Should Investors Play the Stock?
Paramount Global (PARA - Free Report) shares have declined 28.6% year to date (YTD), underperforming the broader Zacks Consumer Discretionary sector’s appreciation of 3.5%.
PARA shares have also lagged the Zacks Media Conglomerate industry and peers like Netflix (NFLX - Free Report) , Fox (FOXA - Free Report) and Walt Disney (DIS - Free Report) .
Over the same time frame, shares of Netflix, Fox and Walt Disney have gained 48.2%, 41.5% and 4%, respectively. The industry has appreciated 4.4% YTD.
PARA shares’ underperformance can be attributed to lower top-line growth due to lower licensing revenues, sluggishness linear advertising market and lower linear affiliate revenues. In the first half of 2024, revenues declined 3% over the year-ago period to $14.5 billion. While licensing & other revenues fell 27%, theatrical revenues dropped 19%.
Paramount Global Price and Consensus
Paramount Global price-consensus-chart | Paramount Global Quote
PARA’s 2024 Outlook Not so Rosy
Paramount expects licensing revenues (15.4% of first-half 2024 revenues) to decline modestly in 2024 despite growing in the second half of 2024.
In the advertising business, it expects direct-to-consumer (D2C) advertising growth in the third quarter of 2024 to be similar to that of the second quarter of 2024. D2C advertising revenues grew 16% year over year in the reported quarter driven by higher viewing hours of Paramount+ and Pluto TV with simultaneous growth in CPMs.
Paramount’s decision to exit Showtime Sports at the end of 2023 is expected to negatively impact TV Media affiliate revenue growth modestly on a sequential basis in the third quarter of 2024.
Paramount expects significant growth in total OIBDA for 2024 and free cash flow to grow compared to 2023.
Can Paramount+ Aid PARA’s Prospects?
Paramount+ continues to be a driving factor for the company’s subscription revenue growth. Although the service ended the second quarter of 2024 with 68.4 million subscribers, down 2.8 million sequentially, Paramount expects it to report net subscriber growth in the second half of 2024. It also expects normal international subscriber growth for the rest of this year.
Higher price due to domestic price increases is expected to drive up the average revenue per user for Paramount+. Charter is the first U.S. MVPD to make the ad-supported tier for Paramount+ available to basic cable subscribers with no incremental cost.
A strong content slate for Paramount+ is a key catalyst. The launch of new seasons of Taylor Sheridan’s hit series Tulsa King in September, Lioness in October and the new series Landman in November are noteworthy. Series finales of Evil and SEAL Team expands content portfolio.
Showtime’s portfolio expands with George Clooney’s The Agency and the return of Dexter: Original Sin.
Paramount expects Paramount+ to post a domestic profit in 2025.
Earnings Estimate Revision Shows Downward Trend for PARA
The Zacks Consensus Estimate for third-quarter 2024 earnings is currently pegged at 19 cents, down 20.8% over the past 30 days and indicates 36.67% year-over-year decline.
The consensus mark for third-quarter 2024 revenues is pegged at $7.03 billion, indicating a year-over-year decline of 1.44%.
For 2024, the Zacks Consensus Estimate for revenues is pegged at $29.78 billion, indicating modest year-over-year growth of 0.43%.
The consensus mark for earnings is pegged at $1.57 per share, down by a penny over the past 30 days. However, it indicates year-over-year growth of 201.92%.
Will Skydance Media Transaction Aid PARA’s Top Line?
PARA is set to acquire Skydance Media, and the transaction is expected to conclude in the first half of 2025.
Under the terms of the agreement, Skydance will merge with Paramount in an all-stock transaction that values Skydance at $4.75 billion, creating a company with an enterprise value of $28 billion. The deal also includes an offering of $4.5 billion in cash or stock to shareholders and providing an additional $1.5 billion for Paramount's balance sheet.
PARA and Skydance merger is part of Paramount’s strategic plan to reduce its $14 billion debt by leveraging Skydance’s financial and technological resources with PARA’S IP and movie library.
Paramount’s 2025 revenue is expected to reach $32.6 billion on a pro forma basis, and 2027 revenues are expected to rise 2% to $33.5 billion.
Further, Paramount expects to generate $500 million of annual cost savings through its initiatives to streamline the organization. It expects to incur restructuring charges between $300 million and $400 million in the third quarter of 2024 related to the streamlining process.
PARA – To Buy, Hold or Sell?
PARA shares are currently undervalued, as suggested by a Value Score of A.
However, weakness in licensing, theatrical and advertising revenues is expected to hurt top-line growth in the near term.
PARA currently has a Zacks Rank #3 (Hold), which implies that investors may want to wait for a more favorable entry point to accumulate the stock.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.