Morningstar

Paramount Earnings: Continued Progress Is Very Encouraging

We think Paramount is on a path to surviving the streaming era, and that its stock doesn’t reflect this.

A general view of the Paramount headquarters.
AaronP/Bauer-Griffin via Getty
Securities in This Article
Paramount Skydance Corp Ordinary Shares - Class B
(PSKY)

Key Morningstar Metrics for Paramount Skydance

  • Fair Value Estimate
    : $20.00
  • Morningstar Rating
    : ★★★★
  • Morningstar Economic Moat Rating
    : None
  • Morningstar Uncertainty Rating
    : Very High

What We Thought of Paramount Skydance’s Earnings

Paramount Skydance PSKY has made substantial progress in stabilizing revenue and enhancing profitability. Adjusted for last year’s Skydance acquisition, total first-quarter revenue grew 1% year over year, and adjusted EBITDA margin expanded 5 percentage points.

Why it matters: Reliance on linear TV has led to declining revenue in each of the past three years, and the firm has taken sizable losses in its direct-to-consumer segment as it attempts to build its streaming service. Results were good across all segments, but DTC dominated the results.

  • Total DTC sales rose 11% year over year, as recent price increases and the exit from a low-revenue bundle offering outside the US boosted average revenue per Paramount+ subscriber by 14%. The firm added 700,000 Paramount+ subscribers in the quarter, more than offsetting the 1.2 million lost from exiting that bundle.
  • The 10% DTC adjusted EBITDA margin looks very impressive, but we suspect this was inflated by an accounting change following the Skydance merger. We don’t think the DTC unit can yet maintain this level of profitability, but cost controls were evident throughout the company.

The bottom line: We maintain our $20 per share fair value estimate. We don’t believe Paramount has a moat, but we think it is on a path to being a survivor in the streaming TV era, and we don’t think the stock reflects that outcome.

  • Paramount’s place in the streaming industry will expand greatly with Warner Bros. Discovery in the fold. Management didn’t offer major updates about the path to finalizing the acquisition. It maintains that the deal will close in the third quarter. We don’t have insight into the timing, but we do expect the deal to be completed.

Key stats: Cost-cutting was a factor in significant margin expansion in all three segments, as the firm is seemingly making good on its declaration to find $3 billion in cost efficiencies by 2027. Management expects to achieve a run rate of $2.5 billion in savings by the end of 2026.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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