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Shares of Paramount Global (NASDAQ: PARA) are down almost 10% in early-market trading today after the company announced its Q3 results. In the September quarter, the media and entertainment giant reported revenue of $6.92 billion in Q3, an increase of 5% year over year but below estimates of $7 billion. Its adjusted earnings per share stood at $0.39, missing estimates of $0.43 in Q3.
Paramount Global attributed cord-cutting and a decline in ad sales to its tepid performance in Q3 of 2022. Valued at a market cap of $11.3 billion right now, PARA stock price is down over 53% in the past year, trailing the broader markets by a wide margin. Let’s see what impacted company sales in the most recent quarter.
Why PARA stock price is down today?
Paramount Global explained sales in the TV media segment, including its broadcast network CBS as well as cable-TV channels and premium network Showtime slumped 5% to $4.9 billion on the back of lower pay-TV subscribers. Due to its lower subscriber base and a challenging macro-environment, ad sales for these networks fell by 3% to $1.9 billion in Q3.
Similar to other companies that generate revenue via advertisement, Paramount too acknowledged a slowdown in this market. Further, the company emphasized it restructured a few of its affiliate TV agreements in international markets, shifting sales from pay TV to online streaming.
Its direct-to-consumer streaming segment managed to perform better. Paramount +, which is a premium streaming subscription service, added 4.6 million customers bringing the total number of subscribers to 46 million at the end of Q3. But it lost close to two million subscribers as SkyShowtime, Paramount’s joint venture with Comcast (NASDA: CMCSA) in the European region, launched in the Nordics and replaced Paramount +.
Bob Bakish, the President and CEO of Paramount Global, explained, “In the third quarter, Paramount continued to execute on our differentiated strategy anchored by our broad range of popular content, our diverse portfolio of platforms, and our truly global operating reach. That strategy continued to drive growth in subscriptions across our streaming platforms with Paramount+ adding 4.6M subscribers.”
Paramount + sales almost doubled year over year as total direct-to-consumer subscribers touched 67 million. Additionally, Pluto TV, which is the leading ad-supported streaming TV platform in the United States, reached 72 million monthly active users, growing the total viewing hours by double digits.
Is PARA stock a buy or a sell right now?
The shift to streaming will be Paramount’s key revenue driver going forward. In Q3, global direct-to-consumer sales were up 38%, while subscription revenue grew 59% year over year. DTC sales in Q3 stood at $1.22 billion, accounting for 1.76% of total revenue. However, this segment remains unprofitable as its expenses stood at $1.56 billion, which in turn reflects investments in content and international expansion.
Analysts expect Paramount Global sales to increase by 6.9% to $30.57 billion in 2022 and by 3.8% to $31.73 billion in 2023. However, a higher cost base will drag its adjusted earnings per share to $1.59 in 2023 from $3.48 in 2021.
While PARA stock is valued at less than 0.4x forward sales, its falling profit margins will not impress investors. A lower stock price has, however, increased its forward dividend yield to a tasty 5.3%.
Paramount ended Q3 with more than $7 billion in liquidity, providing it with enough flexibility to tide over the current environment and rising competition.