Normally, layoffs help stock prices. The combination of cost savings and a willingness to do the “tough thing” for the company’s sake usually endears it to shareholders. Today, the numbers came out on just how many people are getting laid off at Paramount (PARA), and the media giant saw its shares gain nearly 2% as a result.
The latest round of job cuts at Paramount will see around 2,000 employees—roughly 15% of its total operation—removed from the roster. That’s also going to prompt a restructuring charge of somewhere between $300 million and $400 million, which will show up in the third quarter. Most of the cuts will come to marketing and communications departments, while there will be smaller cuts—what Paramount calls “right-sizing” efforts—in other areas like finance and legal.
Of course, that was not all the bad news. Paramount discovered, in much the same way that Warner Bros. Discovery (WBD) did earlier today, that linear television is not doing well at all. Paramount took a $5.98 billion write-down on its cable TV networks. Warner, meanwhile, saw its own write-down, except much larger; that write-down came in at $9.1 billion.
Institutional Change
It’s been anecdotally clear for some time now that more and more former cable subscribers are “cutting the cable” and going to streaming platforms instead of cable. One study found that cable and satellite providers have lost over 20 million U.S. households just in the last 10 years. Further, there will be 1.68 billion subscription video-on-demand (SVOD) subscribers by 2027. That’s a lot of households that aren’t watching cable television anymore.
Paramount demonstrates this point perfectly in microcosm; even as Paramount wrote down its cable networks, it also generated a profit for the first time from its streaming operations. That means viewers are proceeding to streaming, which will cause advertisers to follow.
Is Paramount a Good Stock to Buy Now?
Turning to Wall Street, analysts have a Moderate Sell consensus rating on PARA stock based on three Buys, seven Holds, and 10 Sells assigned in the past three months, as indicated by the graphic below. After a 31.64% loss in its share price over the past year, the average PARA price target of $12.07 per share implies 16.23% upside potential.
