Paramount Earnings: Progress Continues, but the Road Remains Very Long

Paramount PARA continues to make progress in streaming to offset the decline of traditional television on the top line. However, despite progress, streaming is not yet profitable, exacerbating television profit declines. Excluding last year’s Super Bowl ad revenue, total revenue grew 2% year over year.

Why it matters: TV media, responsible for almost all of Paramount’s profit, is declining quickly. It’s imperative for streaming to continue expanding and generate profits. It seems Paramount+ is gaining traction with consumers, but warning signs still exist.

• Streaming revenue grew 9% year over year, to $2 billion, and Paramount+ added 1.5 million subscribers in the quarter. Despite the reduced ad revenue, revenue per Paramount+ subscriber grew 2.5%, and this metric is up 30% on a two-year comparison. Hours watched per user grew 17% year over year.
• However, near-term financial progress may stall. The firm cited a soft streaming advertising market, as much more inventory has come on the market. This has especially hurt Pluto, Paramount’s free service. Also, management expects fewer subscribers next quarter, as an international bundle ends.

The bottom line: We maintain our $20 fair value estimate. While the perpetual decline in its cash cow legacy business leads us to say Paramount no longer has a moat, the firm’s studios and television properties should allow it to transition to the next era of media.

Big picture: Without the benefit of Super Bowl ad revenue, total adjusted EBITDA declined by $300 million, or 30%, to $688 million. We suspect that, excluding Super Bowl profits, earnings would have been closer to flat year over year.

• First-quarter TV media’s adjusted EBITDA dropped by $523 million, to $922 million, largely attributable to Super Bowl advertising. Filmed entertainment’s adjusted EBITDA was $20 million, up $23 million from last year, while the streaming loss improved by $177 million to $109 million.