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Paramount Faces PayTV Declines, But Streaming And Licensing Gains Prompt Analyst Estimate Revisions
PGREParamount (PGRE) Benzinga·2025-03-04 18:21

Core Viewpoint - JP Morgan analyst David Karnovsky maintains an Underweight rating on Paramount Global with a price target of 11,citingongoingchallengesfromPayTVdeclinesandexpectedlossesthrough2026impactingoverallOIBDAandfreecashflow[1].Group1:FinancialPerformanceandProjections−Followingfourth−quarterearnings,ParamountexpectsParamount+toachievedomesticprofitabilityin2025,supportedbyanupcomingcontentslateandARPUacceleration,withglobalwatchtimeincreasingby2011, citing ongoing challenges from PayTV declines and expected losses through 2026 impacting overall OIBDA and free cash flow [1]. Group 1: Financial Performance and Projections - Following fourth-quarter earnings, Paramount expects Paramount+ to achieve domestic profitability in 2025, supported by an upcoming content slate and ARPU acceleration, with global watch time increasing by 20% and a 100 basis points decrease in user churn [2]. - For the first quarter, management anticipates benefits from fourth-quarter net additions, primarily from direct subscriptions, which should enhance ARPU, while also considering the advertising boost from Super Bowl LVIII in 2024 [3]. - The analyst raised adjusted OIBDA for 2025 to 2.99 billion (from 2.95billion)andfreecashflowto2.95 billion) and free cash flow to 576 million (from 353million),reflectingimprovementsinDTCthatoffsetdeclinesinTVMediaandFilmedEntertainment[5].Group2:SegmentPerformanceandChallenges−Thecompanyreportedarecoveryinlicensing,withdomesticsecondarylicensinggrowingindoubledigits,whileinternationallicensinggrowthwasslower,withbuyingoccurringlaterinthebroadcastseasoncomparedtohistoricalnorms[4].−Paramountexpectsaworseningdeclinerateinaffiliatesinthefirstquarterduetorecentrenewals,andadvertisingwillfacechallengesasitcomparesagainstSuperBowlLVIII,withunderlyingtrendslikelyremainingconsistent[5].−KarnovskynotedthatDTCshouldbenefitfromtheupcomingcontentslateandcontinuedARPUgains,reducingthefiscal2025OIBDAdragto353 million), reflecting improvements in DTC that offset declines in TV Media and Filmed Entertainment [5]. Group 2: Segment Performance and Challenges - The company reported a recovery in licensing, with domestic secondary licensing growing in double digits, while international licensing growth was slower, with buying occurring later in the broadcast season compared to historical norms [4]. - Paramount expects a worsening decline rate in affiliates in the first quarter due to recent renewals, and advertising will face challenges as it compares against Super Bowl LVIII, with underlying trends likely remaining consistent [5]. - Karnovsky noted that DTC should benefit from the upcoming content slate and continued ARPU gains, reducing the fiscal 2025 OIBDA drag to 155 million (from -303million),whilealsoloweringTVMediaOIBDAto303 million), while also lowering TV Media OIBDA to 3.70 billion (from 3.76billion)andFilmedEntertainmentOIBDAto3.76 billion) and Filmed Entertainment OIBDA to 48 million (from $113 million) [6]. Group 3: Strategic Updates - The quarter had limited strategic updates, which is expected given the anticipated first-half close of the Skydance transaction [7].