Paramount Revenue Is Down: Analyst Remains Optimistic That 'Gladiator II' And 'Sonic 3' Can Help

Paramount Global‘s PARA third-quarter 2024 financial results reflect a mixed performance across various segments.

Here’s a breakdown, according to the media giant:

• Total revenue reached $6.7 billion, down 6% year-over-year and slightly under analyst estimates.
• Operating income saw a steep decline, down 46% to $337 million
• Adjusted OIBDA (Operating Income Before Depreciation and Amortization) increased 20% to $858 million, beating expectations by 34%.
• Adjusted EPS came in at 49 cents, marking a 63% increase over the previous year and surpassing the estimated 23 cents.
• Licensing revenue also fell 9% due in part to a reduction in third-party productions and home entertainment sales.
• Paramount’s TV Media revenue declined 6% to $4.3 billion, with ad revenue dropping 2% year-over-year.
• Paramount’s DTC segment grew by 10% yearly, reaching $1.9 billion in revenue. Notably, Paramount+ contributed to this growth with a 26% revenue increase.

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Analyst Reaction: Needham analyst Laura Martin reiterated Paramount with a Hold.

Martin remains cautious on Paramount’s outlook, noting the company’s challenges in returning to consistent revenue growth. However, the analyst expressed optimism that a shift towards streaming-driven revenue, alongside Paramount’s cost-cutting measures, could stabilize the company.

Advertising revenue within the DTC segment rose 18%, largely due to new subscribers and higher ARPU (Average Revenue Per User).

Paramount+ enjoyed a 3.5 million quarterly jump in subscribers, totaling 71.9 million by the end of the third quarter.

Martin pointed out that Paramount’s DTC growth trajectory shows positive momentum. The segment achieved profitability for the second consecutive quarter, with adjusted OIBDA swinging to a $49 million profit from a loss of $238 million in the third quarter of 2023.

Despite this, CBS’s NFL viewership increased by 5%, and CBS News’ streaming saw 56% growth in viewing minutes, indicating some resilience in key programming areas.

Paramount also highlighted high ratings for new CBS Primetime series like “Matlock” and “Tracker.” Martin noted these strengths but underlined the need for growth across various shows.

Paramount’s Filmed Entertainment revenue dropped 34% year-over-year to $590 million. Martin noted the timing of releases as a primary factor for the decline while expressing optimism for the upcoming lineup, including “Gladiator II” and “Sonic the Hedgehog 3.”

Martin cited Paramount’s emphasis on shifting content to its platforms and the recent strikes as contributing factors.

Cost Cutting: Paramount aims to achieve a $500 million in annual reduction, primarily through workforce cuts and process streamlining.

By the end of the third quarter, around 90% of these reductions were complete, with the remainder expected by year-end. Martin views these measures as crucial for Paramount to manage profitability challenges, especially in light of shifting revenue streams and the high content production costs.

Paramount faces headwinds, Martin says. There’s potential for the company to regain growth momentum as streaming becomes a larger revenue share. However, she remains cautious until there’s evidence of sustained growth.

Price Action: Paramount stock is up 2.85% at $11.39 at last check Monday.

Martin’s revised estimates reflect this outlook, with fiscal 2024 revenue projected at $29.5 billion (down 1% year-over-year) and adjusted EPS at $1.89, above her previous expectations. For fiscal 2025, she forecasts revenue at $29.7 billion with EPS adjusted to $1.40. Initial projections for fiscal 2026 suggest revenue of $30.1 billion and adjusted EPS of $1.73, marking a gradual return to growth.

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