Paramount Faces PayTV Declines, But Streaming And Licensing Gains Prompt Analyst Estimate Revisions

JP Morgan analyst David Karnovsky maintained an Underweight rating on Paramount Global PARA with a price target of $11.

PayTV declines continue to be a considerable headwind. While DTC execution has been solid, Karnovsky expects losses through 2026, weighing on total company OIBDA and free cash flow.

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Following fourth-quarter earnings, Karnovsky updated estimates for Paramount.

Paramount affirmed its expectation for Paramount+ to reach full-year domestic profitability in 2025, supported by the upcoming slate and continued ARPU acceleration. The service saw improved engagement in the fourth quarter, with global watch time up 20%, leading to a 100 bps decrease in user churn.

For the first quarter, management expects to benefit from fourth-quarter net adds, mostly direct subscriptions that should generate more attractive ARPU. Meanwhile, Karnovsky noted that the quarter will also lap Super Bowl LVIII’s advertising benefit in 2024.

The company noted a recovery in licensing, which benefitted from a normalized content slate and saw domestic secondary licensing grow double digits. International licensing rose at a slower rate, with buying now taking place later in the broadcast season relative to the historical norm.

Paramount expects the decline rate in affiliates to worsen in the first quarter due to recent renewals. Advertising will face headwinds as it laps Super Bowl LVIII while underlying trends will likely remain consistent sequentially.

For 2025, the analyst raised adjusted OIBDA to $2.99 billion (from $2.95 billion) and free cash flow to $576 million (from $353 million), reflecting continued improvement at DTC more than offsetting declines to his estimates at TV Media and Filmed Entertainment.

Karnovsky noted DTC should benefit from the company’s upcoming content slate and continued ARPU gains and trimmed his fiscal 2025 OIBDA drag to $155 million (from -$303 million).

The analyst reduced his TV Media OIBDA to $3.70 billion (from $3.76 billion), given the segment will face headwinds from its recent affiliate agreements and general ecosystem pressures. Karnovsky decreased his Filmed Entertainment OIBDA estimate to $48 million (from $113 million), reflecting the studio’s recent performance better.  

Separate from the results, the quarter had limited strategic updates, which is unsurprising given the expected first-half close of the Skydance transaction.

Price Action: PARA stock is up 0.75% by $11.40 at last check Tuesday.

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