As competition in the streaming market continues to intensify, Paramount Global (PARA) finds itself struggling to keep pace with its deep-pocketed industry rivals. The company’s outlook remains heavily shrouded by uncertainty amidst persistent financial struggles, compounded by the recent loss of a high-profile merger opportunity. In today’s FA Alpha Daily, we delve into Paramount Global’s ongoing challenges with remaining competitive against industry giants and retaining investor confidence.
FA Alpha Daily:
Tuesday Company Specific
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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
Today’s highlight, Paramount Global (PARA) is one of the top stock picks from FA Alpha 50 this month. To see more stock picks like this, become an FA Alpha and get access to FA Alpha 50.