Paramount Global (NASDAQ : PARA), a media company formerly known as ViacomCBS, missed earnings estimates in its most recent quarter losing nearly 6%. Is it a buying opportunity? Lets look at the company.
Paramount Global is a multi-faceted company. It has instantly recognizable cable networks, movies and shows. To name a few: Paramount Pictures, Miramax, CBS television network (sports, news, entertainment), Showtime, Nickelodeon and Simon & Schuster. The company has been trending in the news lately because of growing subscriptions (77 million in the end of 2022) to its new-ish streaming platform called Paramount+.
Q4 2022 earnings revealed that there is room to grow in terms of operating cash flow and earnings. A statement from Bob Bakish, President & CEO, Paramount: “Our content and platform strategy is working and, with even more exceptional content coming this year, we expect to return the company to earnings growth in 2024.”
Paramount is set to grow exponentially in the next few years and is currently trading under its fair value. It has a trailing P/E ratio of 5.35, a forward P/E 19.12, a Price/Book of 0.67 and a Price/Sales of 0.52. These ratios are all lower than its bigger competitors such as WarnerDiscovery, Netflix and Disney. Paramount’s dividend yield is attractive too at 4%. Being a potential acquisition target with its market cap hovering around $15 billion is not impossible (MGM studios was acquired by Amazon for $8.5 billion). Paramount Global is seeking to sell off its Simon & Schuster division in the range of $2-3 billion over the next year and could do many things with that kind of money. Disney is similar in many ways to Paramount, it owns big cable networks (Fox, ABC), has a large library of movies (Disney, Pixar, Starwars, etc). If Paramount was valued like its competitors, it would be selling at a much higher price given its arguably stronger brands. I believe that over the mid-term period of two-three years, Paramount will be priced higher than it is today and will deliver sustainable shareholder returns over said period.
*UPDATE: SEPTEMBER 2023*:
Operating income has fallen in the first two quarters of this year. Gross profit trailing twelve months was $7.423bn, down roughly $3bn from the average of the previous four years. Paramount Global slashed their dividend to focus on and strengthen its streaming segment. It sold Simon & Schuster to KKR, a private equity firm, for $1.62bn.
Good news is here, streaming losses have peaked this year and earnings growth is set to arrive next year. There are also reports of the writers’ strike nearing its end at both Warner Bros and Paramount. The company is trading at an even better price with a price/book of 0.40 and price/sales 0.29.
*UPDATE: DECEMBER 2023*
Paramount Global could be worth more if split up and sold off in segments. Apple expressed interest in merging Paramount+ with Apple+. Warner Bros. Discovery is in early discussions to acquire Paramount Global. Allen Media Group has offered $3.5b for the BET Media Group. Skydance is in talks with Shari Redstone (who has 77% of voting shares) about a possible sale. Estimates for a full takeover of Paramount Global is around $30b, which is nearly 3 times its current market capitalization.
*UPDATE FEBRUARY 7 2024*
Byron Allen offered $14.3b for all outstanding shares of Paramount Global. He offered $28.58 for each voting share of the company’s stock and $21.53 per nonvoting share. Current prices for voting and nonvoting shares are 20.31 and 12.85, respectively. I see a bidding war ensuing or a deal being reached between Shari Redstone and a private company for her super-voting shares.
*UPDATE APRIL 9 2024*
Skydance Media has entered exclusive merger talks with Paramount for 30 days as of friday. A deal for Shari Redstone would give her over $2 billion in the first step of the transaction. The deal being Paramount’s merger with Skydance in a $5 billion all-stock. Skydance’s most recent evaluation values it at $4 billion. Under the terms of the deal, “Skydance could provide a substantial cash infusion to Paramount”. But there are no details on how much the infusion would be. And is Skydance really that valuable? Having only produced around 2 dozen films?. The deal would be great for Redstone but not for ordinary shareholders. I would like to see Paramount consider Apollo’s offer of $27 billion.
I still own and recommend shares of PARA.
Devlin Demontigny 