Paramount Earnings: Top-Line Growth and DTC Profits Dampened by Muted Streaming Subscriber Trend

Key Morningstar Metrics for Paramount Global

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

What We Thought of Paramount Global’s Earnings

Paramount Global PARA reported encouraging second-quarter results amid the continual disintegration of linear television. However, with the Skydance merger set to close on Aug. 7, outgoing leadership did not take any questions or elaborate on the makeup of a net subscriber loss at Paramount+.

Why it matters: We believe perpetually declining television revenue, which still makes up about 60% of total sales, has obscured the value at Paramount. Gains in streaming offset the sales decline in TV media during the second quarter, and direct-to-consumer adjusted EBITDA contributed to profit.

• A net loss of 1.3 million Paramount+ subscribers in the second quarter was attributed to the previously disclosed end of an international wholesale agreement, but management did not say how much the base shrunk otherwise. It did say churn has improved.
• Direct-to-consumer revenue grew 15% year over year, the best rate since the Super Bowl boosted the 2024 first quarter. Paramount+ outshone the broader segment. Average revenue per Paramount+ subscriber rose 9%, helped by price increases, and the subscriber base has grown 14% over the past year.

The bottom line: We maintain our $20 fair value estimate while we await pro forma financials from the Skydance integration and incoming management’s strategy. The ongoing reliance on linear keeps us from awarding Paramount a moat, but we think results can improve drastically.

• Direct-to-consumer adjusted EBITDA was $157 million, more than triple the segment’s best prior result and only the third profitable quarter ever since the launch of Paramount+. TV media adjusted EBITDA declined by $155 million, or 15%, resulting in aggregate growth from the two segments.
• We don’t know whether the pending change in leadership could have altered streaming investment and artificially boosted profits, but that has not been the case in the other quarters since the merger was announced. We aren’t anticipating durable streaming profits yet.