Paramount (PARA) reported third quarter results on Thursday that came in mostly ahead of estimates as streaming losses significantly improved.
Paramount reported a direct-to-consumer (DTC) loss of $238 million, narrower than analyst expectations of $438 million and the $343 million loss seen in the year-earlier period. The company reported a $424 million loss in the second quarter.
The company now forecasts full-year direct-to-consumer losses in 2023 will be lower than in 2022, with anticipated fourth-quarter DTC losses similar to the year-ago period.
We continue to execute our strategy and prioritize prudent investment in streaming while maximizing the earnings of our traditional business,” Paramount CEO Bob Bakish said in the release.
“In Q3, we successfully grew direct-to-consumer revenue and Paramount+ subscribers while narrowing DTC losses over 30%. In fact, we now expect DTC losses in 2023 will be lower than in 2022 — meaning streaming investment peaked ahead of plan. Looking ahead, we remain on the path to achieving significant total company earnings growth in 2024,” he continued.
Paramount shares surged about 10% in after-hours trading following the results.
Paramount posted revenue of $7.13 billion — a 3% year-over-year increase, but a slight miss compared to Bloomberg consensus estimates of $7.15 billion.
Adjusted earnings per share, however, beat expectations of $0.10 to come in at $0.30 — a 23% increase from the year-ago period.
Paramount+ added 2.7 million subscribers in the quarter, beating expectations of a 1.8 million increase. In total, Paramount+ has reached more than 63 million subscribers.
Subscription revenue also grew 46% in the quarter to reach $1.3 billion, driven by subscriber growth and pricing increases for Paramount+, coupled with revenue from pay-per-view events. Overall direct-to-consumer revenue totaled $1.69 billion in the quarter, compared to the expected $1.64 billion.
The difficult TV ad market, however, continued to be a headwind with linear ad revenue slumping 14% year-over-year, worse than the 12% drop expected and also worse than the 10% year-over-year slump seen in the second quarter.
The company said the drop reflects “continued softness in the global advertising market and lower political advertising.”
Licensing and other revenue decreased 12%, driven by lower revenue from original content produced for third parties. Content available for licensing was impacted by temporary production shutdowns as a result of labor strikes.
Paramount recently delayed the theatrical release of “Mission Impossible — Dead Reckoning Part Two” to May 2025 from June 2024 amid the ongoing actors strike.
Still, filmed entertainment revenue beat estimates in the quarter to hit $891 million, representing a 14% year-over-year increase. The segment was aided by the extensions of multiple franchises like “Mission: Impossible – Dead Reckoning Part One,” “Teenage Mutant Ninja Turtles: Mutant Mayhem,” and “PAW Patrol: The Mighty Movie.”
Looking ahead, the company has consistently reiterated a return to positive free cash flow and earnings growth in 2024, aided by recent price hikes of its streaming tiers following the Paramount+ with Showtime integration, layoffs, business restructurings, and a dividend cut announced in May.
Paramount has committed to divesting non-core assets as it works to pare down debt and improve its balance sheet.
Last quarter, the company announced it sold Simon & Schuster to investment firm KKR after the publishing giant’s sale to Penguin Random House collapsed late last year. The $1.62 billion, all-cash deal was completed on Monday.
Its strong slate of assets suggests more M&A activity to come. Showtime and BET Media Group have been two assets recently entangled in sales rumors.
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 just under $8 billion, compared to Disney’s (DIS) $152 billion and Netflix’s (NFLX) $186 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.”
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