Down 47% in this bear market, can Paramount recover in 2023?

what happened

The past few months have been tough for the market as a whole, Paramount Global (Para 1.98%) Investor. The media company’s shares are down 47% from its March peak, and investors are increasingly aware of how competitive and costly they are in the video entertainment market.

So what

A little over a year ago, it seemed like streaming companies were making no mistakes. Due to COVID-19 restrictions, most people were still stuck at home and hungry for all forms of video entertainment, especially streaming. The Paramount+ service, like free-to-view platform Pluto TV, saw a significant increase in subscriber numbers in 2021. Meanwhile, his CBS networks and cable channels such as Nickelodeon and Comedy Central did well. The company’s top line grew 13% that year to $28.6 billion, defying spending headwinds other consumer businesses faced.

But last year was kind of calculated.

After all, simply creating content and building a platform to distribute it does not guarantee a healthy bottom line. Operating profit of $786 million declined 23% year-over-year, continuing the trend seen in the first half of 2022, despite strong subscriber growth and revenue growth in the third quarter of last year. I sold stocks for most of last year.

As the old saying goes, nothing lasts forever. Is it possible that Paramount Global can recover in his 2023?

yes. But…

So

Be careful not to read too much into the 2021 numbers compared to 2022. Both were unprecedented and complicated years. They just needed a lot of content-based spending to drive artificially high growth for streaming service providers. Most of the industry’s major players now say they plan to dominate this spending. In fact, some streaming powerhouses are planning platform mergers and price hikes as the only way to achieve financial viability for their businesses.

But that’s not the path Paramount is on — at least not yet. Last month, CEO Bob Bakish confirmed that he intends to spend $6 billion on content in 2024, compared to his $2 billion in 2021. Most of its spending growth is for growing its streaming service’s subscriber base.

This is probably the right move, given that your rivals are thinking defensively. A highly sensitive strategy for most investors right now, it is likely to keep the company’s streaming business in the red for the foreseeable future. We expect it to drop again from $1.98 to just $1.32. It’s hard to build a bullish argument, especially when the streaming industry is experiencing growing pains and the economy itself is on the defensive.

But for investors who can look ahead this year, it has a relatively cheap 14x price/earnings ratio, an attractive 5.1% dividend yield, and new entrants. Certainly, a riskier long-term outlook can be made.