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Paramount stock valuation ‘coming back to some reality’: Analyst

MoffettNathanson Managing Director and Equity Research Analyst Robert Fishman joins Yahoo Finance Live to discuss Paramount’s streaming strategy, plans to acquire U.S. rights to the Championships League, the Paramount-Walmart streaming deal, and the outlook for streaming giants.

Video Transcript

JULIE HYMAN: It is full steam ahead at Paramount, channeling our old friend Adam Shapiro there. The media giant seeing its streaming strategy rewarded with subscriber growth, all when streaming is finally edging out cable viewers on TV sets specifically. That's according to Nielsen.

But analysts say Paramount's legacy assets are holding the company back. One of them is Robert Fishman he's MoffettNathanson's managing director and equity research analyst. Robert, thanks for being here.

So Paramount+, you wrote, in a recent note, it's an attractive offering but unfortunately, there's more to the company than that, I guess is one way of looking at it. So why are the sum of the parts here not equal to, you know, a great valuation for this company.

ROBERT FISHMAN: Yeah, good morning, thanks for having me. So we have a very strong view here at MoffettNathanson in research, that we look at valuation in terms of the entire company. And over the past couple of years, we think things have gotten a little bit ahead of themselves in terms of valuation. And now, we're coming back to some reality here.

As these companies are being valued, in terms of cash flow and the projections that we have, is that for Paramount, we're not expecting any real growth going forward. So as much as Paramount+ might be growing, we continue to focus on the total company, as you mentioned.

BRIAN SOZZI: Robert, are there maneuvers that you think Paramount can make to unlock value?

ROBERT FISHMAN: Well, it's an interesting question. I would say, the way for them to unlock value is-- really, that they're in a tough spot right now given the pressures that we're seeing in terms of the secular headwinds facing the traditional media ecosystem.

We expect cord cutting to continue to accelerate. And we saw that over the past quarter. Also, we're seeing pressure on advertising now, given some of the macro concerns. And that's playing across lots of their different assets that they actually have. So we think that they're in a difficult spot right now given the legacy media assets, even though Paramount+ actually is growing quite nicely.

But the larger streaming universe is clearly slowing down right now. And we expect that to catch up to them eventually as well.

JULIE HYMAN: The streaming universe is slowing down. Ad demand is slowing down. But the spending, one could argue, is not necessarily slowing down. I mean, I'm referring to, there's a report by Bloomberg this morning that Paramount through CBS won the Champions League rights. There was a battle over that. $1 and 1/2 billion over six years is how much they're paying, which is doubling the size of its previous contract.

So whether you're looking at Paramount or some of these others, do you think that there's now going to be the spate of sort of overspending? Are they going to get the return on investment from getting these big deals?

ROBERT FISHMAN: Yeah, it's a great question and one that we're focused very much about. To your question and point on sports, we saw the Big Ten rights also be confirmed yesterday. And Paramount was a winner of one of those packages.

But because they're trading their SEC game with the higher priced Big Ten rights, that will be a negative trade in terms of the inflation that sports rights continue to put pressure on all these models, but is still essential for these traditional media companies. Because we have a strong belief here that sports is the glue to the overall media ecosystem. And you know, we're seeing that play out, as you mentioned, today, with the reported press, but also over the past couple of contracts as well.

So we think inflation on the sports side is gonna continue. And it's really up to the companies on how they allocate this overall content budgets going forward.

BRIAN SOZZI: Robert, do you investors are not properly evaluating or understanding the influence of Disney in the streaming space? They ended the most recent quarter with 220 million-plus subscribers. And the growth seems to have accelerated over the past few quarters. What's your take?

ROBERT FISHMAN: Well, our take on Disney is really that you need to focus on where those subscribers are coming from. And what the company did last quarter is actually break out, in terms of their future guidance, where the subscribers are going to be coming from to hit their different targets.

So the subs in India-- all subs are not created equally. That the subs that they get in India through Disney+ Hotstar are clearly a much lower value sub than the domestic subs at Disney+. And so we feel pretty strongly that you have to understand where those subs are coming from and not just look at the big headline number.

JULIE HYMAN: Robert, I want to switch gears a little bit because I-- while we have you here, I got to ask you about Warner Brothers Discovery because it just seems like the transition there has been rocky at best, right? And we keep hearing about all of the changes, for example, happening at CNN, "Reliable Sources" the show, being canceled most recently. Us hearing about can that chaos be sort of tamed in the short term?

ROBERT FISHMAN: That's an interesting way how you put it. But I would say that in the short term, the company is still digesting these new assets, and really trying to understand what they acquired and how best to position them going forward. So we're gonna continue to learn more from the company. There's a big investor day coming likely in the fourth quarter where we can hopefully understand some of these longer term strategic priorities for the company.

But clearly, given the leverage that the company has, they have some constraints in terms of how much they can invest and where those priorities are gonna be going forward, in terms of just focusing on streaming or really needing the cash flows from their legacy assets.

JULIE HYMAN: Disclaimer, perhaps I'm looking that too much through my lens as a media person and not in your seat as an analyst. Robert Fishman, thank you so much for being here, MoffettNathanson managing director of equity research. Appreciate it.

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