Paramount Global (NASDAQ:PARA) published a mixed set of earnings for Q1 2022, the first quarter since the company changed its name from ViacomCBS. While revenue was down 1% year over year to $7.3 billion, missing Street expectations, EPS, too, declined by 59% year-over-year to $0.58, although it was ahead of estimates. The year-over-year revenue decline was largely due to the impact of the company’s TV Media division not airing the Super Bowl, which moved to Comcast this year, resulting in lower advertising sales. Profitability has taken a hit as Paramount has doubled down investments to scale up its streaming business.
Starting with this quarter, the company is breaking out its streaming revenues in a new Direct-to-Consumer segment which includes its pay, free, and premium streaming services, which include Paramount+, Pluto TV, and SHOWTIME OTT. Revenue growth was solid, with DTC revenue rising 82%, driven by a 59% increase in advertising sales and a 95% increase in subscription revenues. Paramount grew its total global streaming subscriber base to over 62 million for the quarter, up from 56 million in Q4 2021. The ad-supported Pluto TV channel grew monthly active users to 68 million. The subscriber growth is encouraging, given that the broader streaming industry has been facing headwinds, with bellwether Netflix actually posting its first quarterly subscriber decline in a decade. That said, the streaming business is impacting Paramount’s bottom line, with adjusted operating margins declining to 12.5%, from around 22% in the year-ago period due to rising marketing and content spending. Paramount’s licensing revenues are also facing pressure after several strong quarters of growth as Paramount increasingly allocates content for its internal streaming operations.
Paramount stock has come under some pressure, declining by about 7% this year to date, and by over 25% over the last 12 months, as investors are concerned about the company’s streaming investment plans at a time when the markets are increasingly prioritizing cash flows. However, we think PARA stock is undervalued at current levels of around $32 per share, considering that it trades at just about 11x consensus 2022 earnings and just 8.5x last year’s adjusted earnings. Overall sales growth could also pick up a bit versus historical levels, given the long-term monetization prospects of its streaming business, and the recovery of the advertising market following Covid-19. Paramount’s rich library of content and brands including the Showtime Network, Nickelodeon, and MTV could make the company an acquisition target, for larger streaming platforms and technology companies looking to enter the media space. See our analysis on Paramount Global Valuation: Expensive Or Cheap for more details on Paramount’s valuation. We value Paramount stock at about $43 per share, about 45% ahead of the current market price. Check out our analysis on Paramount Global Revenue for a closer look at the company’s business model and key revenue streams.
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