Paramount Global Is Not Having the Best Week

Tony Maglio
·4 min read

It’s only Wednesday, but Paramount Global executives are surely ready for this week to be over.

Early this morning, the company revealed its third-quarter financials. While the addition of 4.6 million Paramount+ subscribers (to 46 million) was enough of a success to dominate most headlines, the company missed on Wall Street’s revenue and earnings marks.

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Analysts expected $7.01 billion in Q3 revenue from the former ViacomCBS, which reported $6.916 billion, a miss of about $90 million. Paramount Global’s adjusted earnings per share missed the consensus forecast (as compiled by Yahoo Finance) of 43 cents by four cents, reporting 39 cents.

While the revenue grew 5 percent, company operating income declined 36 percent. Even with some favorable adjustments, Paramount Global’s earnings basically halved from the comparable quarter last year.

And that was just 7 a.m. ET on a Wednesday. On Tuesday, a federal judge blocked Paramount’s sale of publisher Simon & Schuster to Penguin Random House, citing antitrust issues. Pending an appeal, there goes that $2.2 billion sale.

“Paramount is disappointed by the ruling in this case,” a spokesperson for Paramount Global said in a statement. “We are reviewing the decision and discussing next steps with Bertelsmann and Penguin Random House, including seeking an expedited appeal.”

The day before that piece of bad news arrived, equity analysts at Wells Fargo downgraded Paramount Global stock (PARA), again, to a Sell. It was the bank’s second downgrade of the stock in a month. (Monday was October 31; Wells Fargo downgraded PARA from Buy to Hold on October 4.) The Wells Fargo target price for Paramount Global stock is now a measly $13 per share; one month (and two downgrades) ago, it was $40.

Fortunately, Wells Fargo has a strategy to turn it all around — and it doesn’t hinge on making more “Top Gun” movies; in fact, it has nothing to do with creating more box-office hits for Paramount. Instead, the analysts recommend, shift to an “arms dealer” approach, a la Sony’s strategy amid the so-called streaming wars; it could double Paramount’s valuation in Wells Fargo’s eyes. However, Sony doesn’t have a platform and Paramount isn’t going to give up on its own any time soon.

Its paid streamers now represent nearly 67 million subscribers globally, the company said Wednesday. The difference between that total and the Paramount+ sum can basically — but not entirely — be attributed to Showtime. Its free FAST service Pluto TV had 72 million monthly active users in the July-September quarter.

Beyond revenue and subscriber growth in streaming, the highlight of Q3 came from the box office. Latecomers to “Top Gun: Maverick” and horror fans who flocked to see “Smile” put a temporary smile on president and CEO Bob Bakish’s face.

“In the third quarter, Paramount continued to execute on our differentiated strategy anchored by our broad range of popular content, our diverse portfolio of platforms, and our truly global operating reach,” Bakish said in a prepared statement accompanying the financial results. “That strategy continued to drive growth in subscriptions across our streaming platforms with Paramount+ adding 4.6M subscribers. Paramount Pictures also extended its stellar run with its sixth #1 film in 2022. Looking forward, we couldn’t be more excited about the array of sensational content coming to Paramount+ in the fourth quarter, as well as the launch of the service in France, Germany, Austria and Switzerland.”

You’ll notice he didn’t say anything about cable TV. You know the old adage, if you don’t have anything nice to say…

In a quick-response note to investors, Wells Fargo called it a “tough quarter” for Paramount Global. They focused on “worsening” pressures at linear television and “slowing” direct-to-consumer revenue growth. Plus: “Expenses are running hot.”

And then there was this paragraph, headlined: “FCF oooof.” (Yeah, they didn’t love what they saw from Paramount’s Free Cash Flow line item.) “The -$333mm cash outflow will certainly get investor attention,” the analysts wrote. Sure did: PARA is down nearly 9 percent in pre-market trading to $17.49 per share.

Bakish and his team of senior Paramount Global executives will host a conference call at 8:30 a.m. ET, on which they’ll say — or not say — more about the quarter. The stock markets officially reopen at 9:30 a.m. ET for the regular trading day.

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