Investor Essentials Daily

Paramount is fighting for survival

March 12, 2024

Paramount Global (PARA) is struggling to compete in the streaming market with its Paramount+ service, which has failed to gain significant traction against competitors like Netflix, Disney+, and HBO Max. 

Despite investing billions since its 2014 launch, the service remains unprofitable, hurting the company’s financial health. 

Efforts to merge with Warner Bros. Discovery (WBD) were aborted due to concerns over Paramount’s financial situation and the investment required for streaming. 

The collapse of this deal leaves Paramount in a precarious position, with its stock price plummeting over 30% YTD and its Uniform return on assets (‘‘ROA’’) declining for six consecutive years, indicating severe financial distress. 

Without a successful strategy to enhance Paramount’s competitiveness or find a buyer, the company’s future is uncertain.

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Paramount Global (PARA) faces increasing pressure as its efforts to compete in the streaming wars have faltered. 

The company’s flagship streaming service, Paramount+, has struggled to gain traction against deep-pocketed rivals like Netflix, Disney+, and HBO Max.

This is putting immense financial strain on Paramount. To attract subscribers and build its content library, Paramount has poured billions into Paramount+ since its 2014 launch as
CBS All Access.

However, these massive investments have weighed down the company’s bottom line for years.

With Paramount+ still unprofitable and its financial performance deteriorating, Paramount explored putting itself up for sale. 

It entered talks to merge with Warner Bros. Discovery (WBD), hoping a larger combined entity could better compete in streaming.

However, Warner Bros. Discovery recently pulled the plug on acquisition talks. 

CEO David Zaslav reportedly balked at Paramount’s weakening financials and the massive investments still needed for its streaming ambitions. With Paramount+ trailing competitors, taking it on was deemed too risky.

This deal collapse is a major blow for Paramount. With no other suitors emerging, it now faces an uncertain future as a standalone company. Paramount+ is still small compared to rivals, and keeping up spending to catch up will only drive profits further down.

The market sees Paramount as a “melting ice cube” business, with declining value the longer it stays independent. Its stock price has tumbled over 30% YTD since merger talks fell through. 

Without a turnaround in streaming or a white knight buyer, questions loom over Paramount’s long-term viability.

Paramount’s financials paint a bleak picture. 

The company’s Uniform Return on Assets (‘‘ROA’’), a key measure of profitability, has declined for six straight years. In 2023, Uniform ROA dropped to just around 10% – far below the historical average.

Take a look…

Paramount finds itself in a desperate situation with no easy answers. To avoid further deterioration, it must find a way to make Paramount+ competitive before investors lose all patience quickly. 

But with deep-pocketed rivals dominating, that is looking increasingly unlikely without a merger to bolster its content and scale. 

Paramount may have no choice but to continue down its current troubled path alone.

Best regards,

Joel Litman & Rob Spivey

Chief Investment Strategist &
Director of Research
at Valens Research

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