Analyst Downgrades Paramount Global Over Streaming Costs, Advertising Issues – Media Play News
July 22, 2022
Paramount Pictures may be on a roll at the box office thanks to films such as Top Gun: Maverick and sonic the hedgehog 2, and the ongoing deployment of the Paramount+ streaming platform. But global expansion and content production are driving up costs, which worries Wall Street analyst Michael Nathanson.
Relying on the fact that media stocks “signal cloudy skies ahead”, Nathanson argues that lingering inflationary concerns continue to significantly reduce television and digital advertising revenue forecasts. As a result, the company downgrades shares of Paramount Global to “underperform” them and cuts the media company’s stock price target to $18 from $30.
“As we have always said, we find it difficult to envisage [direct-to-consumer] revenues and investments in a silo even with the execution of its broader playbook and the continued momentum of Paramount+ through its array of content (sports, kids, general entertainment and news),” Nathanson wrote in a Remark to customers.
The analyst believes the growing risk of an advertising downturn is putting additional pressure on Paramount’s ability to grow pretax earnings and free cash flow to match past levels or see any evidence of it.
improvement in the foreseeable future.
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Nathanson maintains a “market performance” rating for its remaining media/entertainment coverage, which includes Disney, AMC Networks, Netflix, Cinemark and Warner Bros. Discovery. It has an “outperform” rating for Fox Entertainment.
“We do not fully account for this recessionary scenario in our business models because we believe it is too early for us to call the timing and severity of a recession,” Nathanson wrote. “Nevertheless, early signs of a slowdown in advertising demand from digital businesses as well as traditional media suggest that we are much closer to a more material slowdown.”