What happened
Shares of Paramount Global (PARA 1.20%) fell 34.8% in May 2023, according to data from S&P Global Market Intelligence. The media veteran's first-quarter report didn't just fall short of expectations, but it also inspired a dramatic dividend cut. Later, its largest shareholder publicly wondered why he even holds this stock.
So what
Paramount's first-quarter sales dropped 1% lower year over year to $7.27 billion. The Paramount+ streaming service pulled its weight with a 39% revenue increase, balancing out a large drop in the TV segment's ad-based sales. But the streaming channel remained firmly unprofitable and all three of Paramount's reporting segments saw either falling operating profits or larger operating losses. Hence, adjusted earnings fell from $0.60 to $0.09 per diluted share. The average Wall Street analyst had expected earnings of roughly $0.17 per share on sales near $7.42 billion.
In an effort to conserve cash for the benefit of content production and general financial flexibility, Paramount cut its dividend payouts dramatically. The company has been paying out $0.24 per share, per quarter, for several years but the next payout will be worth $0.05 per share. The effective dividend yield plunged from a generous 4.1% to a thrifty 0.9%. It was no surprise to see Paramount investors walking away from that greatly reduced cash-sharing policy. Thanks to the price drop, Paramount's annual yield now stands at 1.3%.
Warren Buffett's Berkshire Hathaway (BRK.A 0.69%) (BRK.B 0.19%) is Paramount's largest shareholder nowadays, and the Oracle of Omaha addressed this disappointing turn of events at Berkshire's annual meeting two days later. He mused about the difficulty of creating growth in the media sector, suggesting that Paramount may need to raise its subscription prices in order to make a profit in the streaming video market. And that's not an easy change, either.
"The eyeballs aren't going to increase dramatically, and the time they can spend is not going to increase dramatically, and you've got a bunch of companies that don't want to quit," Buffett said. "And who knows what pricing does under that? Anybody tells you what they know what pricing will do in the future is kidding themselves."
That's not a ringing endorsem*nt of Berkshire's Paramount investment, which started just one year ago. The insurance-based investment conglomerate is hanging on to its $3 billion media studio investment, according to the latest available reports, though things may have changed after the March 31 cutoff date for the most recently completed reporting period.
Now what
To be clear, Paramount's first-quarter results were not far removed from the management team's official guidance. The company is not in the habit of providing detailed financial guidance but CFO Naveen Chopra sketched out a first-quarter bottom-line earnings target of very approximately $0.08 per share in the previous earnings call.
Chopra also laid out an optimistic long-term plan, expecting ad revenues to start a robust recovery in the second half of 2023. A willingness to focus on long-term plans despite some immediate financial pain is right in line with Warren Buffett's business philosophy, so maybe we shouldn't worry too much about Berkshire's ownership stake.
Paramount is knee-deep in a turnaround effort right now, and the stock trades at bargain-bin valuations. You can pick up a Paramount share for 0.4 times sales, and the company is valued at less than half of its current book value. In other words, many Paramount investors believe that running this movie and media business is much less valuable than simply selling off all of Paramount's assets and handing out the resulting cash to shareholders.
It's not easy (and often quite silly) to bet against Warren Buffett and his top-notch team of investment researchers, but Paramount is still far from my top recommendation in media streaming or digital advertising right now.
Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.
FAQs
In an effort to conserve cash for the benefit of content production and general financial flexibility, Paramount cut its dividend payouts dramatically. The company has been paying out $0.24 per share, per quarter, for several years but the next payout will be worth $0.05 per share.
Why has Paramount stock dropped so much? ›
Paramount has been bleeding money in its streaming business. Although losses have narrowed, the company still reported a direct-to-consumer (DTC) loss of $490 million in the fourth quarter. It's also been plagued by plummeting linear TV revenue as more consumers cut the cord.
How low can Paramount stock go? ›
The average price target for Paramount Global Class B is $13.29. This is based on 21 Wall Streets Analysts 12-month price targets, issued in the past 3 months. The highest analyst price target is $19.00 ,the lowest forecast is $9.00. The average price target represents 12.91% Increase from the current price of $11.77.
What stocks do Motley Fool recommend? ›
The Motley Fool has positions in and recommends Alphabet, Amazon, and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
Is Paramount a good long term investment? ›
Per share PARA boasts an average earnings surprise of 382.5%. With strong valuation and earnings metrics, a good Zacks Rank, and top-tier Value and VGM Style Scores, investors should strongly think about adding PARA to their portfolios.
Does Warren Buffett still own Paramount stock? ›
Warren Buffett sells Paramount shares as 'Big Short' Michael Burry buys Warner Bros. Fortune.
Who is Paramount merging with? ›
Now Peaco*ck and Paramount Plus are discussing a merger, too
Now news comes that Comcast, the owner of Peaco*ck, may be entertaining a merger with the beleaguered Paramount. Everyone seems to be kicking the tires on the storied entertainment business. In Comcast's case it may make sense.
What is the outlook for Paramount stock? ›
Stock Price Forecast
The 19 analysts with 12-month price forecasts for Paramount Global stock have an average target of 14.32, with a low estimate of 9.00 and a high estimate of 25. The average target predicts an increase of 16.47% from the current stock price of 12.30.
Is Paramount a good stock to buy now? ›
Is Paramount Global stock a Buy, Sell or Hold? Paramount Global stock has received a consensus rating of sell. The average rating score is and is based on 29 buy ratings, 12 hold ratings, and 33 sell ratings.
Who are the largest shareholders of Paramount? ›
Largest shareholders include Berkshire Hathaway Inc, Vanguard Group Inc, BlackRock Inc., State Street Corp, VTSMX - Vanguard Total Stock Market Index Fund Investor Shares, Invesco Ltd., Morgan Stanley, Charles Schwab Investment Management Inc, VFINX - Vanguard 500 Index Fund Investor Shares, and Geode Capital ...
John Ballard has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Goldman Sachs Group, Microsoft, and Nvidia.
What stock will boom in 2024? ›
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Paramount lost $238 million from its streaming business in the prior quarter (and $424 million in Q2 and a $511 million in Q1), when it gained 2.7 million Paramount+ subs. Now that 2023 is over and 2025 is expected to be profitable, we know that 2022 was the peak year for Paramount streaming losses.
Is Paramount stock undervalued? ›
PGRE has a P/S ratio of 1.36. This compares to its industry's average P/S of 3.83. These figures are just a handful of the metrics value investors tend to look at, but they help show that Paramount Group is likely being undervalued right now.
Is Paramount a buyout target? ›
Paramount has long been viewed as a potential acquisition target.
What is the future of Paramount+? ›
In May 2022, Paramount announced that Paramount+ was planned to commission 150 international originals by 2025, including several from Latin America (mainly Mexico) and European territories (including France, Italy and Spain).
Is Paramount having an issue? ›
No, we are not detecting any problems with Paramount Plus right now. The last outage detected for Paramount Plus was on Friday, April 5, 2024 with a duration of about 45 minutes.
