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Paramount's 'key focus' has turned to profitability: Analyst

Paramount Global (PARA, PARAA) posted mixed fourth quarter results, missing on revenue but returning to profitability as streaming revenue rose 69% annually. Moffett Nathanson Senior Analyst Robert Fishman discusses the results on Yahoo Finance Live.

Fishman says the earnings report reveals Paramount's "key focus" on reducing losses and restoring profitability. However, headwinds such as declining linear TV and competition for ad dollars persist. While Paramount is doing "as well as they can," challenges remain, including its limited cash generation and substantial debt. As speculation swirls about potential partnerships or mergers, Fishman notes acquirer "appetite" and risk tolerance are key.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Angel Smith

Video Transcript

[AUDIO LOGO]

- Paramount shares climbing higher up just about 3 and 1/2% in the pre-market after posting a surprise profit in the fourth quarter boosted by 69% jump in streaming revenue from just a year ago. Now, the media giant also announcing that it expects to achieve profitability for Paramount Plus in 2025 in the US. For more on these results, we want to bring in Robert Fishman. He's a MoffettNathanson senior analyst.

Robert, it's good to have you here. So certainly it looks like shareholders, investors are pleased with these results. What's your first take on Paramount's most recent earnings report?

ROBERT FISHMAN: Yeah. Good morning. We think it was a kind of in-line quarter. I think it speaks to what you just touched on. Clearly, they're very much focused as one of their key priorities this year in terms of reducing the losses and trying to hit profitability. They gave guidance for 25 to hit US streaming profitability. And really, they're doing as well as they can. But there are still significant challenges out there in the industry that they have to face.

- What is the likelihood that they can navigate those challenges without an acquisition or a merger?

ROBERT FISHMAN: I mean, that is the key question here. Clearly, there's been lots of speculation over the past few months in terms of those potential partnerships and different exit strategies for the company with public and probably more private bids too. Ultimately, it comes down to the appetite that any acquirer wants to take on. The risk that comes with that because of the secular challenges facing the traditional TV ecosystem with advertising, headwinds, and cord cutting.

Everything that we're all familiar with. But really, the question is, what is the value of these assets? And what's the value to different parties involved?

- Robert, anything in this report. Does it change at all the position of Paramount given the fact that it is, obviously, at a disadvantage when you compare it to some of the leaders within the space?

ROBERT FISHMAN: Yeah. I'd say the biggest disadvantage is really the lack of cash that the company produces. They did surprise, if you want to call it, a little bit to the upside in terms of expectations with free cash flow growing slightly over the positive cash flow that they got to in '23.

So that is, I guess, a step in the right direction but just relative to most of these other media companies out there, there's just really not a lot of cash-- free cash flow that the company is producing, which again, puts it in a challenging position given the debt and the leverage here.

- I mean, this really seems like a company that is trying to get that direct to consumer profitability, cost synergies here. But that has been achieved by some of its other competitors by also announcing some of the advertising tiers. And we're seeing that-- that digital advertising landscape really kind of heat up here. What does that flow through mean for Paramount? And can they attract the same type of advertising spend that some of those other major competitors are doing?

ROBERT FISHMAN: Yeah. It's a great question. I would say, there's still ramping up there. And talking about the fact that there are opportunities there, they also have the other asset Pluto, which is one of the FAST channels. And it seems as if growth has slowed there, cooled off at the very least.

So they're definitely pushing more on the Paramount Plus advertising tier. But as I'm sure you well know, so are everyone else, and especially with Amazon now in the marketplace and Netflix ramping up and Disney Plus ramping up, there's just a lot of competition for these streaming ad dollars.

- Yeah. We do know it well. Robert Fishman, MoffettNathanson senior analyst. Thanks so much for taking the time here with us today, Robert.

ROBERT FISHMAN: Thanks a lot for having me.

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