SINGAPORE, SINGAPORE – MAY 27: A model of Mirage on display at the World Premiere of Paramount … [+]
Getty Images for Paramount PicturesParamount Global stock (NASDAQ
NDAQ
: PARA) has had a tough year, declining by about 12% year-to-date, underperforming the S&P 500 which has risen by about 10% over the same period. The stock also remains down by over 50% in the last 12 months. The markets have been penalizing Paramount
PARA
for some time now, considering its mounting investments into the streaming operations and the company’s recent decision to cut its dividend by almost 79% to $0.05 per quarter. Paramount’s Q1 2023 results were also weaker than anticipated, with revenue declining by about 1% year-over-year to $7.27 billion. The company also swung to a net loss of $1.12 billion in the quarter due to charges related to the cancellation of certain programing following its decision to combine its streaming platform Paramount+ with Showtime. Moreover, the company also faced a weak advertising market as well as higher streaming-related costs. The Direct-to-Consumer business, which includes all of the company’s streaming operations, saw adjusted operating losses rise to $511 million as the company continued to invest heavily in content and customer acquisition.
However, despite the tough results, we think that Paramount stock looks quite attractive at current levels of under $15 per share. While the markets have put pressure on Paramount for its streaming investments, they actually appear to be paying off slowly. Over Q1, Paramount added about 4.1 million subscribers to its flagship Paramount+ streaming service, about 1 million more than the markets had estimates. The service now has 60 million, marking an increase of roughly 40 million over the last two years. Revenues for Paramount’s DTC business expanded by 39% year-over-year to over $1.5 billion. We think that Paramount’s earnings have considerable potential to increase in the coming years, given the long-term monetization prospects of the streaming business. Paramount previously raised its 2024 direct-to-consumer revenue target from $6 billion to $9 billion. Moreover, Paramount can monetize its new content investments via a mix of television, theatricals, and streaming, helping it to boost its returns compared to players such as Netflix
NFLX
which are purely streaming-focused. Paramount stock trades at about 20x 2023 earnings (which are being depressed by the current streaming spending). Looking at potential 2024 results, the stock trades at just about 10x earnings, which is attractive, in our view. This is well below the likes of Netflix, which trades at over 28x 2024 earnings. We value Paramount stock at about $24 per share, which is well ahead of the current market price. See our analysis on Paramount Global Valuation: Expensive Or Cheap for more details on Paramount’s valuation. Check out our analysis of Paramount Global Revenue for a closer look at the company’s business model and key revenue streams.
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