Entertainment leader Paramount Global (PARA) offered up good news and bad news with its latest earnings report. That was enough to send the company down 4.3% in premarket trading Tuesday morning.
The losses continued into Tuesday’s trading. While Paramount offered some good news about subscriber counts, it also offered some bad news about revenue and ad rates.
I’m shifting much of my expectations on streaming video stocks, and pulling back to neutral on Paramount+. Streaming is fast becoming a maturing market.
The last 12 months for Paramount have been erratic at best. Starting off with a bit of a rally, the company briefly broke the $45 mark back in late June. However, that kicked off a long decline which put Paramount under $30 for a while. Recovery followed, but couldn’t quite hold out to get us to today’s price, just under $30 per share.
The latest news lent hope to investors, but not much. Paramount posted earnings of $0.60 per share, which handily beat Zacks estimates calling for $0.47 per share. However, the company also posted revenue of $7.33 billion. That not only faltered against the Zacks estimate, missing it by 1.66%, but it also fell against last year’s $7.41 billion.
Wall Street’s Take
Turning to Wall Street, Paramount Global has a Moderate Buy consensus rating. That’s based on nine Buys, seven Holds, and three Sells assigned in the past three months. The average Paramount Global price target of $40.89 implies 38.2% upside potential.
Analyst price targets range from a low of $29 per share to a high of $60 per share.
Investor Sentiment Looks Bright Almost Everywhere
As far as investor sentiment goes, things look good on almost every front. There’s one notable exception and it comes from hedge funds.
The TipRanks 13-F Tracker reveals that hedge funds once again cut their involvement with the media giant. After a bump up between March 2021 and June 2021, hedge funds began cutting involvement, and continued to do so in the latest quarter.
Insider trading offered a very optimistic look at Paramount going forward. There has been no selling activity by Paramount insiders in the last six months. In the last three months, buy transactions led sell transactions four to nothing. In the last year, the blowout is even bigger, with just five sell transactions but 53 buy transactions recorded.
Retail investors who hold portfolios on TipRanks also showed a bullish stance. In the last seven days, portfolios holding Paramount Global increased 0.4%. In the last 30 days, that number spiked 12.1%.
Finally, there’s the matter of Paramount’s dividend history. It’s not as good as it might be; the dividend hasn’t increased since December 2019. With a pandemic complicating the picture, it’s easy to see why. However, there probably should have been an effort to hike the dividend by now. That keeps income investors in the picture.
A Fairly Messy Picture
The pandemic did an excellent job of simulating a recession, since it had the same effects of people going out less often. Stocks that did well in the pandemic will likely also do well in the upcoming recession.
The problem, however, is the streaming market itself. This is a maturing market.
The major studios, who were fine with just leasing out their content to online platforms, discovered there was huge profit to be made therein. Thus, they hurried to make their own platforms. Now, we have the market we have today.
People are still interested, of course. Paramount itself raised its goal for global streaming audience from between 65 million and 75 million to over 100 million by the end of 2024. Yet now, people have more options than ever when it comes to streaming platforms.
As a result, churn — the rate at which customers unsubscribe from a subscription service — has increased across many platforms. Customers will increasingly subscribe to a service just long enough to consume its new content, and then cancel accounts, departing for other platforms.
This also delivers a blow to advertising rates. Advertisers have plenty of choices, and are left to wonder if they should spend a little with multiple services or focus their efforts on one platform. That’s a potential windfall, but also a potential loss.
Already, some analysts are looking for smaller streamers like NBCUniversal (CMCSA), and even Paramount, to become part of other platforms.
This isn’t necessarily a bad idea. Paramount’s lineup doesn’t contain a lot of new ground. Connecting to another network may be a good way to add reach and market appeal, and thus draw attention from platforms like Disney+.
However, for investors, this represents both danger and opportunity.
Concluding Views
The streaming market is still an extremely dynamic field. There’s a lot going on, and much of it is likely to change in the next few years.
As individual stocks in this sector go, Paramount Global presents a solid opportunity. It’s got a stable dividend, and excellent investor sentiment behind it. It’s also trading near its lowest price targets rather than its high, or even average.
However, there will be a lot of changes in this market going forward. Be ready to move accordingly.
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