It's been a roller-coaster ride for investors in Paramount Global (PARA -2.22%), the media giant that oversees such brands as Nickelodeon, MTV, and CBS. After dropping during the early stages of the pandemic, Paramount shares went on a run that saw the stock price soar over 700%. It's now dropped by more than 80% from its March 2021 high.
Paramount's Q1 results weren't the best, but they weren't too far off management's expectations. Revenue was down only 1% year over year, but that drop was primarily driven by revenue declines in its TV media and filmed entertainment businesses. Revenue in those two areas declined by 8% and 6%, respectively.
With mixed results and so much uncertainty ahead for Paramount, many investors are wondering if they should jump ship or stay the course. Let's see which may be the better option.
A lot is riding on streaming
The good news is that Paramount's TV media business is solidly profitable, and its filmed entertainment business has been profitable for three of the last four quarters. The bad news is that its streaming business isn't, and a lot of Paramount's future growth will likely rely on that segment becoming profitable.
That will likely come down to one thing: scale. The good news is that Paramount+ added 4.1 million monthly active users (MAUs) in Q1, bringing the platform over the 60 million mark. It's still a ways away from streaming services like Netflix and Walt Disney's Disney+, which easily have nine-figure MAUs, but it's a step in the right direction.
Warren Buffett, whose company Berkshire Hathaway is Paramount's largest shareholder with over 93 million shares (as of March 31), expressed some concerns about the viability of Paramount's streaming growth. Buffett noted that "eyeballs aren't going to increase drastically" and that increasing pricing was the likely route to profitability, but not quite ideal.
Dividends woes could deter investors
Paramount recently announced that it would be slicing its quarterly dividend from $0.24 per share to $0.05 -- a huge cut and the lowest the dividend has been since the company cut it in 2009.
Investors can view this cut in two ways. The first, obviously, is with dislike. The other way to view it is more positive as it shows that Paramount management isn't afraid to make tough, unpopular decisions for the company's long-term good.
Paramount's free cash flow was negative in Q1, continuing a trend we've seen since early 2022. In Q1 alone, Paramount paid out over $156 million in dividends, based on its weighted average number of common shares outstanding. With the new per-share payout, it'll pay out much less than that for the entire year. That stark difference could be a big help to Paramount's balance sheet.
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Is Paramount worth the investment?
The short-term woes for Paramount are still a little concerning, but that's likely the case for many businesses in its industry. That shouldn't deter long-term investors who can ride out the storm. But that's assuming it's just a storm and not a problem that's here to stay.
I'm not confident Paramount's streaming options will be enough to pad its bottom line, and with the cut to the dividend, there's not as much of a downside safety net as before.
It's been rumored that Paramount may (or at least should) entertain acquisition offers, which could be a better scenario for shareholders since value should increase if it goes private. It's not the worst scenario, but there's also no guarantee it'll actually happen.
Paramount is definitely at a crossroads, which isn't necessarily a bad thing. Sometimes it's good to go back to the drawing board, even if it's because you were forced to do so. I believe Paramount is a hold with everything going on right now.
