JPMorgan downgrades Paramount stock as shares fall

Paramount shares are slipping after the company received a downgrade by JPMorgan.

Video transcript

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SEANA SMITH: Shares of Paramount under pressure this afternoon after a downgrade from JP Morgan. Alexandra Canal has the details for us. Allie, we can see shares off just about 4 and 1/2%.

ALEXANDRA CANAL: That's right, Seana. JPM downgrading those shares to underweight from neutral and setting a December 2023 price target of $25 a share versus its prior target of $39 for end of year 2022. Now the big bank cited softer direct-to-consumer revenue, higher losses this year, as well as an expectation of weakening EBITDA and cash flow over the next year.

Now, that has become an increasingly important element for investors and analysts alike prior to years past. It's not really so much about the subscriber growth anymore, but the earnings potential, the business impact. Can you make money from this? And that's why we're also seeing Warner Bros Discovery shares trade much lower today since that company significantly slashed its EBITDA guidance for this year, as well as 2023, following yesterday's earnings results. Shares there down nearly 17%.

And then, of course, in regards to Paramount, beyond that, we have those macroeconomic challenges, softened advertising revenues, more consumers cutting the cord. And really, it's the declines in the paid TV that can be another real headwind for Paramount moving forward, especially with content cost surging, competition intensifying.

Even if some of those users go to Paramount+, they're going to have to increase their spending, increase that investment, and that, in turn, will impact that free cash flow. So we'll see how shares continue to ride this out, dealing with quite a few problems here despite earnings that really weren't that bad. A beat on both the top and bottom lines, but that operating income falling sharply, which is contributing to that negative sentiment on the Street.

SEANA SMITH: It certainly is. All right, Allie Canal, thank you.