Should I Buy Paramount Global (PARA)? Finance YouTuber Analysis

The analyst suggests avoiding Paramount Plus (and by extension, Paramount Global) because the hypothetical Netflix-Warner Bros. Discovery merger puts smaller streaming services in 'serious trouble.' Paramount lacks the necessary scale, pricing power, and financial strength to compete effectively with larger players like Netflix, Apple, and Amazon, especially for expensive content rights like the NFL.

“But the real impact is going to be Paramount Plus and Peacock are in serious trouble. They just haven't reached scale yet. They haven't been able to be profitable.”

Travis Hoium argues that Paramount is in a downward spiral due to its inability to achieve scale and profitability in streaming, coupled with a weak balance sheet and high debt. He believes the company lacks a viable strategic path forward unless it pivots to a content licensing model, which it seems reluctant to do, making it a poor investment.

“I just don't see any easy way out of it.”

The analyst believes Paramount+ is in significant trouble within the streaming landscape, noting that other major players are not seeking to partner with them for bundles. This suggests a lack of perceived value or content strength compared to competitors.

“the one that I haven't talked about is Paramount plus I think that one's really in trouble because nobody wants to partner with them”

The analyst suggests that a potential acquisition of Paramount Global by Sony and Apollo, with a strategy to shut down Paramount+ and sell its content to other streamers, would be a financially sound move. This approach would transform a money-losing streaming business into a revenue-generating content provider, benefiting shareholders and the broader media landscape by providing more content to successful streaming platforms.

“I just think a Paramount in Sony deal makes a lot more sense than Paramount in a company like Sky Dan and I don't think there's necessarily anybody else who would be allowed to buy them right now.”

The analyst advises avoiding Paramount Global due to its significant debt of $14.6 billion and ongoing operating losses, particularly in its streaming division. He believes the company is stuck in the middle of the streaming market, lacking the scale of larger competitors and the agility of niche creators, making a profitable and sustainable future unlikely in its current form.

“I worry that that's exactly where we're going to head with Paramount that's the biggest reason I'm not investing in the turnaround of this company or any sort of merger Arbitrage.”

The YouTuber advises avoiding Paramount due to its weak position in the streaming market, characterized by declining revenue, deteriorating margins, and significant cash burn in its direct-to-consumer segment. He argues that Paramount lacks the scale and content library to compete effectively with leaders like Netflix and Disney, making it an 'uninvestable' company.

“I think this just makes it an uninvestable company right now.”

The analyst suggests avoiding Paramount due to its streaming service, Paramount+, losing significant money and lacking the scale of competitors like Netflix and Disney. The company faces a difficult choice between continuing to lose money on streaming or licensing its content, indicating a challenging investment outlook.

“Paramount plus is the other one 63 million subscribers and they are just losing money like crazy on Paramount plus.”

The analyst suggests avoiding Paramount Global due to its challenging strategic position in the media landscape. He highlights its weaker content assets and lack of pricing power in streaming compared to competitors, leading to significant losses and negative free cash flow. The company's high debt ($17 billion) and declining gross margins (from over 40% to 33%) further contribute to the negative outlook, as its traditional cable business declines and streaming investments fail to generate sufficient income.

“I just don't see a world in which they are one of the top two or three streaming companies so very tough position for them.”

The analyst recommends avoiding Paramount Global despite Warren Buffett's stake, citing the company's high debt levels ($17 billion vs. $9.3 billion market cap) and declining revenue from its core cable business. He notes that streaming growth is insufficient to offset these losses, leading to net income falling from a $4 billion profit to a $1.6 billion loss. The analyst believes Paramount lacks the negotiating power of larger media companies and is unlikely to be a winner in the streaming wars, suggesting its best path is to license content rather than compete directly.

“I just don't see a solid future for Paramount.”

The analyst highlights Paramount Global as a stock with a high percentage of sell ratings from analysts, indicating a negative outlook. The company has struggled in the streaming wars, holding less than 10% market share against dominant competitors, suggesting it's a stock to avoid.

“In the most recent consensus sell-rated stocks, we see names like Paramount Global Ticker P, which has all but lost the streaming wars with less than 10% market share along with Apple TV against dominant players like Netflix and Amazon.”

The analyst advises against investing in Paramount, citing its high debt levels and lack of growth or profitability to compete effectively in the streaming market. He believes these factors make it vulnerable to its debt becoming a significant problem.

“Of the five streamers here I would be least likely to invest in Paramount or Warner Brothers Discovery here both are highly indebted and don't have that growth or the profitability to compete before that debt becomes a problem.”

The YouTuber mentions that Warren Buffett's Berkshire Hathaway owns a significant stake in Paramount Global, suggesting a reason for optimism despite expected earnings plunges. He notes that earnings are anticipated to rebound next year with higher ad spending and the potential sale of its Noggin service could boost cash flow for streaming content.

“Warren Buffett's Berkshire Hathaway though on 15 percent of this company that is one of the largest Holdings of the Berkshire Hathaway portfolio there there is a reason to be optimistic.”

Hogue recommends Paramount Global, highlighting its cheap valuation after a significant sell-off in streaming stocks. The stock trades at nearly half its five-year average price-to-sales, and Warren Buffett recently added to his stake. Earnings are expected to rebound, and the company offers a 4% dividend yield while investors wait for advertising revenue to recover.

“shares of Paramount now trade for 0.51 times sales nearly half the five-year average and well under the sector average valuation in fact Shares are so cheap here to Warren Buffett added to a stake in the last three months with Berkshire now owning 15 percent of the company”

While acknowledging Paramount Global's cheap valuation and dividend, the YouTuber expresses a preference for competitors like Warner Brothers and Disney in the streaming space. He highlights concerns about the high cost of content production in the competitive streaming industry, which negatively impacts profits.

“I think that's one of my biggest fears right now is this just this race in streaming stocks to produce this content between Netflix Disney Paramount Warner Brothers, Discovery. Uh it is getting extremely expensive to produce all this content for these.”

The analyst is hesitant to invest in Paramount Global, citing similar concerns to Discovery regarding the streaming market. He notes the high cost of content production and intense competition, which will likely lead to lower near-term earnings. He believes Discovery has a stronger content library and a more defensible niche compared to Paramount's relatively generic offerings, despite Paramount's broader reach.

“As mentioned I'm already a little hesitant to jump into any of these streaming stocks especially the ones outside those top two or maybe even three providers competition is still heating up here and the content is getting more expensive to make that race for subscribers is going to mean lower near-term earnings and for some that promise of future earnings may just never materialize.”

The analyst believes Paramount Global is a very interesting investment opportunity despite current challenges. He forecasts that if the company can restore its EBITDA margins to historical levels (around 15%) over the next 10 years by cutting costs and growing its subscriber base, the stock could yield a 27% annual internal rate of return. This projection is based on a conservative valuation model that assumes the company's strong brands will endure and that earnings will recover, which would also address its high debt-to-EBITDA ratio.

“what I'm trying to say is I think here this is not check the box but is a very interesting investment opportunity if you like this type of risk return profile”