Paramount Global (PARA 1.55%) stock is down 10% this year, and the stock is now lower than when Warren Buffett's company, Berkshire Hathaway, bought shares in the first quarter of this year. Paramount recently reported financial results for its second quarter, which beat expectations and may shed some light on why Buffett bought the stock. Let's break it down.

Continued progress in streaming

Last week, Paramount released second-quarter earnings that were met favorably by investors. Revenue for the company grew  19% to $7.8 billion during the quarter, which beat Wall Street forecasts of $7.55 billion. Earnings per share of $0.64 also beat forecasts of $0.62 for the quarter.

The star of the show was Paramount's highly anticipated theatrical release of Top Gun: Maverick. The movie was one of the first blockbuster releases after a long COVID-19-related hibernation for movie theaters. The film grossed more than $1.3 billion in global box office receipts. At the domestic box office, Top Gun: Maverick passed Paramount's own Titanic as the seventh highest-grossing movie in history.

TV viewer choosing streaming services on a TV screen.

Image source: Getty Images.

Great movies come and go, but Paramount's future will be determined by success in its Direct-to-Consumer (DTC) segment. That is where the company houses its streaming platforms like Paramount+, Showtime, and Pluto TV. Overall, DTC segment subscribers rose to nearly 64 million after accounting for 3.9 million pulled from Russia. Paramount+, the company's flagship streaming service, pulled in 4.9 million new subscribers pulling its total up to 43 million. Streaming adds for the second quarter were down from 6.3 million in the first quarter but come at an interesting time when streaming giant Netflix (NFLX -2.43%) reported it shed one million subscribers.

Paramount's DTC segment also holds lesser-known but widely viewed Pluto TV, which is the No. 1 free ad-supported streaming service in the U.S. Monthly average users on Pluto TV grew to 70 million, and global viewing hours grew double digits for the second consecutive quarter.

All-in-all, DTC revenue grew 56% to $1.2 billion over last year's second quarter. Though impressive, revenue growth was down from 82% in the first quarter. Management cited weakness in the advertising market as a source of declining revenue growth. In the long run, though, Paramount management said it predicts over 100 million  DTC subscribers and at least $9 billion in DTC revenue by 2024.

A big concern for investors has been losses accumulated at streaming services, like Paramount's DTC segment. Adjusted OIBITDA, a non-GAAP metric showing operating income adjusted for non-operating and non-cash items like interest, taxes, and depreciation, was negative $445 million in the second quarter. Losses have mounted in DTC because the company is building out the tech behind the streaming platform. Though, Paramount expects adjusted operating income before interest tax, depreciation, and amortization (OIBITDA) losses in 2023.

What does Buffett see in Paramount?

Buffett's company Berkshire Hathaway bought nearly 70 million shares of Paramount in the first quarter of 2022 for $2.6 billion. Mr. Buffett may have harkened back to Paramount founder Sumner Redstone when he coined the phrase "Content is king."

Paramount+ saw strong engagement from hit new shows, including Halo, 1883, and Star Trek: Strange New Worlds. The streaming platform also contains UEFA Champions League and recently won rights to Indian Premier League Cricket. The two sports franchises are a massive draw from international sports enthusiasts.

Buffett also likes cash-flow-generative businesses. Thinking ahead, the company should require significantly less ongoing capital investments when Paramount has finally built out its streaming platform. Although investments in streaming are weighing on free cash flow nowadays, the company should produce more free cash flow than it has historically.

There is no shortage of quotes from Warren Buffett, but one is applicable here: "Price is what you pay, value is what you get." The stock is down from when Buffett invested in the first quarter. So, if you see the same value in the company that Buffett does, you're getting a better price than the Oracle of Omaha himself right now.