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Paramount stock jumps amid improved Q2 streaming losses

Paramount Global (PARA) reported second quarter earnings after the bell on Monday that beat estimates as the company continues to climb back from advertising headwinds and heightened streaming losses.

Paramount reported a direct-to-consumer loss of $424 million in the second quarter compared to a loss of $445 million in the prior-year period and a loss of $511 million in the first quarter. The company has said streaming losses will peak this year after losses totaled $1.82 billion in 2022.

Shares climbed as much as 7% in after-hours trading immediately following the results, fueled by the narrower streaming loss.

The difficult TV ad market, however, continued to be a headwind with linear ad revenue slumping 10% year-over-year, worse than the 8% drop expected but a slight improvement compared to the 11% drop in the first quarter. Management has maintained that the second half of the year will see improvements in the ad market.

Notably, Paramount announced that it has sold Simon & Schuster to investment firm KKR after the publishing giant's sale to Penguin Random House collapsed late last year. The deal is valued at $1.62 billion.

Paramount reported second-quarter revenue of $7.62 billion, higher than analyst estimates of $7.43 billion but down compared to the year-earlier period when revenue hit $7.8 billion. The company reported an operating loss of $250 million versus profits of $819 million in Q2 2022.

Similar to revenue, adjusted earnings also beat estimates in the quarter to hit $0.10 a share, but was still down compared to the $0.64 a share the company reported a year ago.

The company has guided to a return to positive free cash flow and earnings growth in 2024. That should be aided by the recent price hikes of its streaming tiers following the integration of Showtime with Paramount+, layoffs, business restructurings, and a dividend cut last quarter that initially sent shares plummeting nearly 30%.

Paramount launched its Paramount+ with Showtime offering on June 27 at a price point of $11.99 a month. The new offering, which the company described as its "cornerstone" service, is available alongside the ad-supported Paramount+ Essential plan and the free ad-supported service Pluto TV.

As a result of the merger of the two streaming services, the company took a content impairment charge of $1.67 billion in the first quarter but said it expects $700 million in future annual expense savings.

Still, the integration hurt subscriber net additions with the company adding just 700,000 Paramount+ subscribers in the second quarter compared to 3.7 million in Q2 2022.

M&A still top of mind amid financial struggles

Despite the company's financial pressures, its strong slate of assets suggests more M&A activity to come as the macro environment continues to improve.

Paramount has long been viewed as a potential acquisition target due to its small size relative to competitors. The company boasts a current market cap of about $10 billion, compared to Disney's (DIS) $157 billion and Netflix's (NFLX) $193 billion.

Paramount CEO Bob Bakish hinted more media M&A was on the horizon while speaking at a UBS media conference late last year.

"Consolidation has been the rule in business for a long time, certainly been the rule in media," he said at the time. "So, it’s hard for me to bet on anything other than consolidation will happen in the future."

Bob Bakish attends the US Premiere of Paramount Pictures'
Bob Bakish attends the US Premiere of Paramount Pictures' "Transformers: Rise of the Beasts" at Kings Theatre on June 05, 2023, in Brooklyn, New York. (Jason Mendez/Getty Images for Paramount Pictures) (Jason Mendez via Getty Images)

In February, shortly following the announcement that Paramount would be folding Showtime into Paramount+, The Wall Street Journal revealed the company had turned down a more than $3 billion offer from executive David Nevins to buy Showtime.

Nevins's proposal was one of many offers the company had received for Showtime over the past several years, the Journal said. The network, which is home to popular shows like "Billions" and "Yellowjackets," was said to be a key driver in unlocking value for the media giant.

In addition to the Showtime offer, the company has tiptoed around recent reports of a potential sale of the company's BET Media Group, which includes cable channels BET and VH1, after producer Tyler Perry and media mogul Byron Allen reportedly expressed interest in purchasing a majority stake.

Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on Twitter @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.

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