Paramount Q4 Revenue Falls 6% to $7.63 Billion, Dragged Down By 11% Decline in Ad Revenue

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The media conglomerate narrowed its streaming losses to $490 million, says it expects domestic profitability in 2025

Paramount Global earnings
Paramount Global

Paramount Global continued to make progress narrowing its streaming losses during the fourth quarter of 2023, saying it now expects to be profitable domestically in 2025. But the company continued to face advertising-related headwinds, which dragged total revenue down 6% year over year.

“As we approach the third anniversary of the domestic launch of Paramount Plus, we’re capturing operating leverage in streaming faster than expected and we intend to build on that momentum,” Paramount chief financial officer Naveen Chopra told analysts on Wednesday.

Here are the top-line results:

Net Income: $404 million, up 122% year over year.

Adjusted Earnings Per Share: 4 cents per share, compared to a loss of 5 cents per share expected by analysts surveyed by Zacks Investment Research.

Revenue: $7.63 billion, compared to $7.78 billion expected by analysts surveyed by Zacks Investment Research.

Streaming Subscribers: Added 4.1 million subscribers for a total of 67.5 million

Shares of Paramount climbed 2% in after-hours trading on Wednesday following the latest results.

Paramount narrowed its streaming loss for the quarter to $490 million, an $85 million year-over-year improvement. The company expects to attain domestic profitability in its streaming business in 2025.

The direct-to-consumer division, which includes Paramount+ and its free, ad-supported streamer Pluto TV, added 4.1 million subscribers during the fourth quarter for a total of 67.5 million.

DTC revenue grew 34% year over year to $1.87 billion. Subscription revenue grew 43% to $1.3 billion, driven by subscriber growth and pricing increases at Paramount+. Advertising revenue grew 14% to $526 million, reflecting growth from Paramount+ and Pluto TV.

But the company’s TV Media segment dragged down the quarter’s results, falling 12% year over year to $5.168 billion. Advertising revenue for the segment fell 15% to $2.28 billion, reflecting continued softness in the global advertising market and the impact of the Hollywood strikes. The strikes also prompted a 25% decline in licensing and other revenue, which came in at $882 million for the quarter.

The segment’s profit fell 12% to $1.1 billion, reflecting the revenue decline, which was partially offset by lower costs for content and marketing, including from the impact of the strikes.

In the Filmed Entertainment segment, revenue fell 31% year over year to $647 million, primarily due to a 32% drop in licensing and other revenues to $566 million. Theatrical revenue fell 20% to $78 million, reflecting the mix of film releases in each period.

The decline in licensing revenue reflected the comparison to the success of “Top Gun: Maverick” in the digital home entertainment market and the licensing of “Halloween Ends” in 2022, as well as lower revenue from studio rentals and production services as a result of the strikes.

The segment’s profit fell 72%, reflecting impacts from the strikes and the comparison to the licensing of Halloween Ends. In 2023, Paramount Pictures films generated $2 billion at the global box office and delivered five #1 debuts at the domestic box office.

The latest quarterly results come just days after the media conglomerate was placed on a negative credit watch by ratings agency S&P Global due to free cash flow concerns.

The firm has said it could lower the company’s current BBB- rating if Paramount’s adjusted leverage remains above 3.5 times or if free operating cash flow/debt remains below 10%. S&P Global currently anticipates that Paramount’s free operating cash flow and debt will improve about 5% in 2024, and 7% to 8% in 2025, remaining below the 10% threshold it set for the rating.

S&P ratings director Jawad Hussain noted it will make a determination in the next several weeks, incorporating Wednesday’s earnings results into its analysis.

Paramount has also been the subject of sale speculation, with Skydance Media and Allen Media Group founder Byron Allen emerging as interested suitors. Skydance Media has reportedly made a preliminary offer to acquire controlling shareholder National Amusements to take control of Paramount and is doing due diligence on a potential transaction. Meanwhile, Allen has placed a $30 billion bid, including the assumption of debt, to buy Paramount for $28.58 per voting share and $21.53 per non-voting share.

Warner Bros. Discovery CEO David Zaslav also met with Paramount Global CEO Bob Bakish in December about a possible merger, though CNBC reported that the media giant has decided to halt those talks.

When asked about M&A interest, Bakish declined to comment on the recent speculation, but emphasized that the company is “always looking for ways to create shareholder value.”

Looking ahead, Bakish has said Paramount would prioritize driving earnings growth in 2024 through efforts including cutting back on international, local original content, leveraging content licensing and workforce reductions. Earlier this month, the company said it would lay off up to 800 staffers.

Paramount anticipates an approximately $1 billion in programming and restructuring charges in the first quarter of 2024, with approximately $200 million related to the restructuring.

It also expects 2024 subscriber growth to come in lower than 2023, but “very healthy” growth in Paramount+ revenue. Chopra said Paramount would exit hard bundle relationships where the economics weren’t compelling, representing a loss of “a couple million subs.” He added that Paramount is “seeing some signs of stabilization” in the ad market and expects to report low to mid-teens growth in the first quarter of 2024, including the benefit of the Super Bowl.

The company also expects free cash flow growth in 2024, despite an increase in cash content spend as production resumes following the strikes. Paramount generated $558 million in net operating cash flow and $443 million of free cash flow during the fourth quarter.

“Regardless of current market sentiment, we’re convinced that the value of our assets today, combined with the execution of our strategy as we move forward, represents a significant value creation opportunity,” Bakish told analysts. “We are dedicated to unlocking that value.”

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