Thursday, August 4, 2022

Paramount Global Results Includes Good and Bad News


Paramount Global, which changed its name from ViacomCBS in February, reported a surge in revenue in the second quarter, boosted by the box-office megahit Top Gun: Maverick and continued growth in streaming subscribers. Both revenue and earnings per share were higher than expected, while income and free cash flow tumbled from the year-earlier period as expenses rose faster than revenue. Signs of slowing spending on advertising in a shakier economy were another negative reports Barron's

In today’s market, that’s not what investors are looking for—even from a stock as ultracheap as Paramount’s—and shares have lost a third of their value over the past year. Paramount stock  was up slightly on Thursday morning following the earnings release.

Paramount said it brought in $7.8 billion in revenue in the second quarter, up 19% from the same period a year ago, and ahead of Wall Street analysts’ average estimate of $7.6 billion. Earnings per share were 53 cents, down from $1.50 a year ago, while after adjustments, the profit was 64 cents, down 34% year over year and ahead of the 61-cent consensus estimate.

Paramount’s preferred profit measure is adjusted operating income before depreciation and amortization—or Oibda. That came in at $963 million, down by 22% from the year-earlier quarter and better than analysts’ $901 million average forecast. Free cash flow was $81 million, matching Wall Street’s estimate.

Media investors have become increasingly focused on the bottom line this year as rising interest rates rate reduce the current value of earnings that will flow in years from now. Speculative shares are less in favor, and streaming-subscriber growth at any cost is no longer enough to satisfy.

While Paramount’s streaming services continued to grow in the second quarter, although at a slower pace than before, profits remain years away, by management’s own admission. The company ended the second quarter with 64 million streaming subscribers across the globe, up by 1.3 million during the quarter after removing 3.9 million subscribers in Russia. Otherwise, global subscribers would have been up by 5.2 million in the period. Paramount added 6.3 million during the first quarter.

The company’s flagship Paramount+ service added a net 3.7 million subscribers, to end the second quarter with 43.3 million. That is more than double the year-ago total. The service made its debut in several foreign markets during the quarter, including the U.K. and South Korea.

Pluto TV, Paramount’s free, advertising-supported streaming service, had nearly 70 million monthly active users in the second quarter, up by about two million. That compares with growth of more than three million in the first quarter.

The subscriber growth pushed streaming revenue higher, but profits from the segment remain far off. Paramount is in streaming-investment mode, spending billions of dollars a year on new content, advertising, and foreign market launches to fuel subscriber growth.

Paramount management’s long-term target is for the streaming segment to have $9 billion in annual revenue and $6 billion in content cost by the end of 2024. Peak losses from the segment are expected in 2023.

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