Paramount Global PARA has been facing a slump in its ad-revenues, which declined 2% in third-quarter fiscal 2022 and is expected to decline by a larger percentage in the fiscal fourth quarter as well, as per CEO Robert Bakish.
Robert Bakish has also revised the company’s previous forecast downward, below the fiscal third quarter, rather than in-line with prior results.
This has caused Paramount to lose 39.9% of its share price year-to-date compared to the Zacks Consumer Discretionary Sector, which declined 32.8% in the same time frame.
Although the company is optimistic and believes that the challenging advertising market is cyclical, they do not have steady plans to see improvements in the near future.
How is Paramount Aiding its Top-Line?
Advertising and subscription fees are the two biggest revenue streams for Paramount. The toppling of ad revenues could be attributed to the economic downturn, which started with the coronavirus pandemic and was further led by the Russia-Ukraine War. These have resulted in high inflation, rising interest rates, high capital costs, a soaring US dollar and an anticipated recession in the coming year.
In such turbulent and uncertain markets, companies are trying to decrease their costs and the first step to take on the heels of it is to compromise on advertising expenses. Per Duke Today, 42% of the companies are set to cut marketing budgets in the coming months.
This trend is likely to prevail in the coming quarters as ad-spending is not expected to grow robustly, which suggests that Paramount could face difficulties in boosting its top-line unless the economy revives.
Insider Intelligence has slashed global 2022 ad-spending forecast by nearly 6% and predicts it to reach only $695.96 billion by 2024, from the prior guidance of $756.47 billion.
However, on the brighter side, though advertising is seen taking a dip, what offsets it is the company’s subscription revenues.
Paramount added 4.6 million subscribers to its Paramount Plus streaming service and Pluto TV added 2.4 million monthly active users globally in the third quarter of fiscal 2022. This has bolstered affiliate and subscription revenues by 8% in the discussed quarter.
The company now expects to exceed its full year global direct to consumer subscriber growth expectation of 75 million global subscribers.
Paramount Global Price and Consensus
Paramount Global price-consensus-chart | Paramount Global Quote
Streaming services in particular are gaining huge traction from viewers these days due to the ongoing cord-cutting. Per Future Market Insights, the video streaming market size is expected to grow from $73 billion in 2021 to $750 billion by 2031. This serves as an opportunity for Paramount to aid its top line by providing indulging content to its audience.
However, given the wide opportunity in this segment, this Zacks Rank #5 (Strong Sell) company is bound to face stiff competition from streaming leaders like Netflix NFLX, Walt Disney DIS and Warner Bros Discovery WBD.
Both Netflix and Disney are set to launch their ad-tier subscriptions by the end of this year. These low-cost subscription plans are expected to improve their subscriber growth.
Netflix added 2.41 million new paid subscribers in third quarter fiscal 2022 and expects to add 4.5 million paid members in the next quarter with a 6% year-over-year increase in its average revenue per member.
Disney reported a total of 164.2 million Disney+ global subscribers in fourth-quarter fiscal 2022, an increase of 12 million subscriber from the previous quarter.
Warner Bros saw streaming subscriptions rise to nearly 95 million combined global customers across HBO, HBO Max and Discovery+ in third-quarter fiscal 2022.
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