- Needham analyst Laura Martin reiterated a Buy on Paramount Global (NASDAQ:PARA) and a $36 price target.
- Martin fine-tuned her quarterly estimates to reflect more robust DTC profits in 3Q22 but weaker DTC profits in 4Q22 versus her prior forecast.
- Despite weak scatter pricing, she believes PARA's linear TV business will operate at breakeven in 2H22, aided by solid political ad revenues of $220 million, by her estimate. Linear TV is today's cash cow paying for OTT since PARA does not own Theme Parks.
- Contrary to the popular view, she loves PARA's asset mix, including its global linear TV networks, leading FAST channel platform, broadcast stations, and Paramount+.
- She believes bundling can lower churn by up to 50% and elevate LTV. PARA has several bundling choices for consumers and advertisers.
- She highlights that PARA has multiple revenue streams in its business lines. She believes revenue diversification lowers investor risk, which drives considerable valuation upside.
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- The fact that PARA's linear TV business is flat or slowly shrinking does not bother her because it represents PARA's cash cow that funds its high-growth DTC streaming businesses. She believes that to win, SVOD services must have news and sports, which means they must own broadcast TV stations.
- After these revisions, she retained her FY22 revenue estimate at $30.6 billion for PARA but lowered her Adjusted OIBDA estimate by about $80 million to $3.48 billion.
- PARA is too cheap at current levels, given its sum-of-the-parts value and its takeover attractiveness.
- Finally, at a $12 billion market cap, she believes PARA is too small to win the streaming wars. Still, it is bite-size enough to be acquired by a larger streaming competitor for its deep library of film and TV content, sports rights, and news assets. Logical buyers include Amazon.com Inc (NASDAQ:AMZN), Apple Inc (NASDAQ:AAPL), Comcast Corp (NASDAQ:CMCSA) & Warner Bros. Discovery, Inc (NASDAQ:WBD).
- The analyst thinks that, besides being small and inexpensive, PARA owns one of the most valuable TV and film libraries in the media business, worth well above MGM's $8.5 billion sale price to AMZN.
- Price Action: PARA shares traded lower by 2.63% at $18.62 on the last check Friday.
- Photo Via Company
