Stock market takeover: Is Paramount a buy?

World Paramount (FOR -2.27%) CEO Robert Bakish has emit signals that the company’s earnings for the current quarter will struggle to match the prior quarter’s results. Speaking recently at the UBS Global TMT conference in New York, Bakish said macroeconomic factors were suppressing spending in the advertising industry and dragging down Paramount’s numbers. The executive noted that Paramount was actively seeking “some improvement in some areas,” but admitted those changes have yet to materialize.

Investors reacted badly to Bakish’s outlook, sending Paramount shares down 9%. But there are signs in the company’s most recent results that suggest the media company may be in a stronger long-term position than is immediately apparent.

Depressed economic outlook

Advertising space has been low for some time, characterized by many big brands choosing to reduce their committed marketing spend. Coupled with many economists anticipating a US recession in 2023 or 2024, ad-dependent businesses are likely to feel the strain for some time to come.

In its report for the third quarter of fiscal year 2022, Year cited the current economic environment as a challenge to its revenues. “We expect these conditions to be temporary, but it is difficult to predict when they will stabilize or rebound,” the company said in a statement.

SVOD is promising

One of the brightest spots in Paramount’s third-quarter results was its subscription video-on-demand (SVOD) service, Paramount+.

Paramount’s direct-to-consumer (DTC) sales number grew to nearly 67 million worldwide in the quarter; 46 million were Paramount+ customers. Streaming Rivals netflix and by Walt Disney Disney+ is much larger with 223 million and 164.2 million subscribers respectively, but Disney+ is available in 130 markets, while Netflix is ​​in 190. Paramount+ currently reaches less than 70 countries.

Still, despite the modest numbers, Paramount is aiming for 100 million DTC subscribers by the end of 2024. And one of the ways the company hopes to achieve that is with movies and live sports.

A content game

Top Gun: Maverick – produced by Paramount subsidiary Paramount Pictures – generated nearly $1.5 billion in worldwide ticket sales this year, making it the highest-grossing film of 2022. Seeking to cash in on the film’s popularity , Paramount announced Top Gun: Maverick will debut exclusively on Paramount+ later this month. The move is part of a larger strategy that, by 2024, will see all Paramount Pictures movies move to Paramount+ once they’ve completed their theatrical release.

Last year, Paramount (then known as ViacomCBS) signed an 11-year contract with the NFL, allowing it to broadcast live game coverage via CBS Sports and Paramount+. The cross-platform deal went into effect with the current NFL season, which Paramount said was a “significant acquisition” driver.

Paramount recently secured a six-year extension for UEFA Champions League football, which includes the right to broadcast matches live on Paramount+. Paramount also has a similar cross-platform deal with PGA Tour.

Paramount stock as a long-term bet

As things stand, Paramount’s stock price is below $20, nearly half of its 52-week high of $39. But if the company can continue to leverage its strengths in content and reach 100 million SVOD customers in the next 12-24 months, its value will surely increase.

The threat of an economic downturn could certainly suppress demand, and perhaps consumers will have to be more selective about which streaming services they subscribe to. But given that Paramount+ starts at $4.99 a month, offers live sports and bonafide blockbuster movies, it could fare better than many of its rivals if households start cutting services. .

For investors considering multi-year bets, Paramount shares might be worth a closer look.

Tom Wilton has had business dealings with Netflix and knows the Top Gun: Maverick screenwriter professionally, but does not hold a position in any of the stocks mentioned. The Motley Fool holds positions and recommends Netflix, Roku and Walt Disney. The Motley Fool recommends the following options: January 2024 long calls at $145 on Walt Disney and January 2024 short calls at $155 on Walt Disney. The Motley Fool has a disclosure policy.

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