With Streaming Losses Narrowed, Paramount Sees Growth Ahead — Is Wall Street Buying It?

After exceeding revenue estimates and topping expectations for how much it could cut losses in its streaming unit (only $238 million in the red is a win right now), Wall Street analysts picked through Paramount Global‘s Nov. 2 earnings report for how it’s faring in a battle to survive in a landscape with far larger media and tech giants.

The company, controlled by Shari Redstone and run by Bob Bakish, hit 63 million global streaming subscribers in the latest quarter (a gain of 2 million) and touted that total revenue hit $7.1 billion, up 10 percent year-over-year, with free cash flow at $377 million.

The company’s leadership also believes that 2022 marked the peak investment year for its streaming ambitions — powered by Paramount+ and Pluto TV — and that this year losses will be overall lower than last year, an encouraging sign. Partnerships with Delta and Walmart+ were touted by the company as far as expanding the reach of Paramount+.

As far as content spending on film and TV series and sports rights, CFO Naveen Chopra said on an earnings call that the plan is “about having the right content for the right audience at the right time. And we are laser-focused on continuing to find ways to further improve the efficiency of our content spend in both linear and streaming.”

On the film side, Bakish stated that theatrical releases have been about 8 titles a year, but “maybe” that number rises to 12 in a couple of years. Paramount also incurred about $60 million in costs due to idle production last quarter amid a summer of work stoppages during the Writers Guild of America and SAG-AFTRA strikes.

In early trading on Friday, Paramount stock is up nearly 12 percent to $13.37, but that price is still down about 23 percent year-to-date.

Finance experts who waded in with early takes were mixed on overall outlook. JP Morgan analyst Philip Cusick wrote that his team likes Paramount’s “cost-cutting efforts, focus on DTC profitability, and decision to improve the balance sheet” but still lowered his stock price target to $13 (from $17) citing “the company’s valuation premium vs. peers … lack of scale in DTC, linear exposure, and macro backdrop.”

CFRA Research’s Kenneth Leon lowered his stock price target $2 to $16, noting that Paramount expects direct-to-consumer losses in next quarter “to be comparable to Q3 losses.”

Guggenheim analyst Michael Morris maintained his “buy” rating with a price target of $19, writing that the firm views Paramount as a “high-quality company tackling the same challenge of navigating the consumer shift away from linear bundles toward streaming platforms, and we expect that investors will largely look at long-term risks and value creation opportunities similarly across the peer group.”

On the flip side, TD Cowen’s Doug Creutz lowered his Paramount price target from $21 to $14, noting the company was “under pressure” in the current streaming landscape. “We believe the company has enough high-quality content to continue to survive in an increasingly challenging video content ecosystem,” Creutz wrote. “However, the company’s decision to fully commit to competing with Netflix, Amazon, Disney, Comcast and Warner Media-Discovery in the general entertainment [streaming] space remains expensive, with little margin for error.”

Meanwhile, a team of five analysts at research firm MoffettNathanson has a “sell” recommendation and a $10 target price, but did note that the firm’s earnings exceeded expectations in some respects, especially in cutting costs on streaming. “Paramount+ is moving into this age as a leaner and more efficient platform than we had anticipated. DTC losses were -41% smaller than we had forecasted,” the MoffettNathanson team wrote. “We think some of this newfound thriftiness is thanks to the impacts of the Hollywood strikes, but it also may be due to a rationalizing in how the company approaches its streaming investments.”

Wells Fargo analyst Steven Cahall, who has a $12 price target for Paramount, sees a turning point for media conglomerates looking to right the ship on streaming profitability. “Recall that this is not so different from CMCSA’s Peacock, which beat at the bottom-line in Q3 with expectations for better losses this year. There’s been a collectively falling DTC tide … if it begins to rise there could be meaningful Media revaluations,” Cahall wrote.

The sentiment was tempered by Bernstein expert Laurent Yoon, who has an $11 price target on the studio conglomerate. “Light at the end of the tunnel? Not yet,” the analyst wrote. Yoon noted that despite 16 percent growth year over year, global average revenue per user (ARPU) is “the lowest among major players at $6.11/month … Perhaps the only way is up from here, but it’ll continue to face pressure.”

If this is a turning point for streaming losses for traditional studios, Nov. 8 will be the day to watch when Warner Bros. Discovery and Disney both report their latest earnings results.