Paramount Global's PARA shares have lost 26.4% year to date (YTD), underperforming the broader Zacks Consumer Discretionary sector’s appreciation of 14.2%.
PARA's shares have also lagged the Zacks Media Conglomerate industry and peers Netflix NFLX, Fox FOXA and Walt Disney DIS.
Over the same time frame, shares of Netflix, Fox and Walt Disney have gained 84.4%, 57.9% and 28.1%, respectively. The industry has appreciated 20.7% YTD.
PARA shares’ underperformance can be attributed to low top-line growth due to lower theatrical revenues, subdued licensing activity and challenges in the linear advertising market. Subscriber losses and the absence of pay-per-view events have further impacted PARA’s performance.
In the third quarter of 2024, revenues declined 6% year over year to $6.73 billion. While Direct-to-Consumer (D2C) revenues surged 10%, TV Media revenues dropped 6%. Filmed entertainment revenues dropped 34% due to a massive 71% decline in theatrical revenues year over year.
Paramount Global Price and Consensus
Paramount Global price-consensus-chart | Paramount Global Quote
PARA’s Outlook
Paramount expects licensing revenues to decline in the full year 2024, relative to 2023. In the third quarter of 2024, licensing and other revenues declined by 9% year over year.
In the advertising business, PARA expects D2C advertising in the fourth quarter of 2024 to show double-digit growth. D2C advertising revenues grew 18% year over year in the third quarter, reflecting growth from Paramount+ and Pluto TV.
TV Media advertising growth in the fourth quarter is expected to be similar to the reported 2% decline in the third quarter, with benefits from record political spending, but less sports inventory compared to the prior year.
Paramount’s decision to exit Showtime Sports at the end of 2023 is expected to affect TV Media affiliate revenue growth on a sequential basis in the fourth quarter of 2024.
Paramount expects to receive nearly $500 million of proceeds from the sale of its equity interest in Viacom18. It expects the sale to be closed in the fourth quarter of 2024.
Paramount anticipates negative free cash flow in the fourth quarter of 2024 due to the timing of content spending and approximately $150 million in cash restructuring payments.
Can Paramount+ Aid PARA’s Prospects?
Paramount+ continues to be a driving factor for the company’s subscription revenue growth. In the reported quarter, Paramount+ added 3.5 million new subscribers, reaching 72 million subscribers overall, and solidifying its position as the fourth-largest global-streaming service. Revenues for the platform grew 25% year over year.
Global Average Revenue Per User (ARPU) grew 11% in the third quarter of 2024, tempered by the 2023 price hike and a shift toward Essential tier and hard bundle subscribers. The August 2024 price change is expected to take time to impact ARPU due to existing Essential tier users temporarily on old rates, affecting fourth quarter 2024 growth.
Paramount expects continued subscriber growth at Paramount+ in the fourth quarter, driven by a solid slate of originals and the CBS fall schedule. However, it does not expect to add any new hard bundle partnerships in the to-be-reported quarter.
Paramount+ continues to thrive with a strong content line up. Hit series like Mayor of Kingstown and Tulsa King returned with new seasons, with Tulsa King becoming the platform’s biggest global debut.
Internationally, Paramount+ offers South Park exclusively for SVOD and will bring it to the United States in June 2025. Recent premieres like Lioness and Landman further bolster its content portfolio.
Paramount’s Showtime portfolio is expanding with George Clooney’s The Agency and Dexter: Original Sin.
Paramount expects Paramount+ to achieve domestic profitability by 2025.
Earnings Estimate Revision Shows Upward Trend for PARA
The Zacks Consensus Estimate for fourth-quarter 2024 earnings is currently pegged at 20 cents per share, up by 25% over the past 30 days.
The consensus mark for fourth-quarter 2024 revenues is pegged at $8.11 billion, indicating a year-over-year growth of 6.17%.
For 2024, the Zacks Consensus Estimate for revenues is pegged at $29.34 billion, indicating a year-over-year decline of 1.06%.
The consensus mark for earnings is pegged at $1.86 per share, up by 22.37% over the past 30 days.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
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, subject to regulatory approvals and other customary closing conditions.
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.
The 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.
PARA – Buy, Hold or Sell the Stock?
PARA shares are currently undervalued, as suggested by a Value Score of A.
However, weakness in licensing, theatrical and advertising 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.
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