Is Paramount Global A Value Stock? Inside Berkshire Hathaway's Purchase

Legendary value investor Warren Buffett took a stake in a leading media company in the first quarter. Could the purchase by Buffett signal placing multiple bets on the streaming wars or that the company is in the value stock territory?

What Happened: A 13F filing shows that Berkshire Hathaway Inc (NYSE: BRK-A)(NYSE: BRK-B) took a new $2.6 billion stake in media company Paramount Global Inc PARAPARAA.

Paramount Global is the new name given to the company after a merger brought Viacom and CBS back together after a previous split. Assets owned by Paramount Global include the CBS broadcast channel, cable channels such as MTV, Comedy Central, Nickelodeon and Nick Jr., and the Paramount+ streaming service.

With the new $2.6 billion stake, Buffett becomes one of the largest shareholders in the media company. Paramount is controlled by National Amusements, a media company owned by Sheri Redstone and the Redstone family. Mario Gabelli, founder of GAMCO, is also a large investor in Paramount Global.

Related Link: Berkshire Hathaway Now Owns 9.5% Of Activision Blizzard Ahead Of Merger: Here's What Warren Buffett Had To Say 

Why It’s Important: Paramount joins a growing list of entertainment stocks owned by Berkshire Hathaway, including several that have competing streaming platforms. Berkshire owns stakes in Apple Inc AAPL and Amazon.com, Inc. AMZN, which own the AppleTV+ and Amazon Prime Video platforms, respectively.

Buffett’s company also owns a stake in Charter Communications Inc CHTR, a company working on a new streaming platform in partnership with Comcast Corporation CMCSA.

The Berkshire stake in Paramount could indicate Buffett is placing multiple bets on the growing streaming market. More likely, the investment was done as there is some recognized value in Paramount seen by Buffett.

Paramount currently pays a dividend yield of 3.4% and is trading at a price to earnings multiple of 9.9x, according to data from Benzinga Pro.

Paramount is also showing growth in several business lines, including its Paramount+ streaming platform, which could be recognized by Buffett.

Paramount reported first-quarter direct-to-consumer (DTC) revenue of $1.1 billion, up 82% year-over-year. DTC advertising revenue hit $347 million in the first quarter, up 59% year-over-year.

Paramount+ added 6.8 million subscribers in the first quarter to hit a total of around 40 million. The results came as rival Netflix Inc NFLX reported its first quarterly subscriber loss in more than 10 years with a loss of 200,000 subscribers in the first quarter.

Buffett doesn’t typically bet on acquisitions, but Paramount has been circled as a target with its strong library of content, including its highly coveted sports content such as National Football League coverage. A Business Insider article recently mentioned Paramount as a potential target for Amazon as it works to expand its sports and live streaming options.

Paramount’s CBS network channel is also a key-value piece to the portfolio. CBS ended the 2021-2022 TV season with the most total viewers, a feat it has accomplished for the past 14 years.

The success of CBS’s shows could be part of the reason the streaming platform is seeing success as it is the exclusive home to many of the series.

“These incredibly popular series have been a key driver in the growth and success of our streaming service, Paramount+,” CBS Entertainment president Kelly Kahl said.

Benzinga’s Take: Network television remains a popular content outlet for viewership and CBS has shown it can dominate the ratings with a hit lineup of dramas, comedies and sports coverage. The network’s success has helped boost the figures for Paramount+, which might be an underrated player in the streaming wars.

Buffett’s stake in Paramount likely leans on the value side given a price to earnings multiple of around 10 and a strong dividend yield. Streaming growth and a potential acquisition target add to the lure of the media company by Buffett and other investors looking at media names.

Price Action: Paramount (PARA) shares are up 13.95% to $31.893 on Tuesday morning. Shares have traded between $26.11 and $47.46 over the last 52-weeks.

Photo: Courtesy Paramount