2023-08-17 03:00:00 ET
Paramount Global ( NASDAQ: PARA ) stock price has underperformed the broader American stock market and its media peers. The shares surged to $94.40 in March 2021 and have now plunged by 84% from their all-time high. This decline has brought its total market cap to $9.7 billion.
Paramount Global woes mount
I have just finished reading The Epic Battle for a Media Empire and the Redstone Family Legacy. It is an epic book that describes the ins and outs of CBS and Paramount, which combined to form Paramount Global.
Paramount Global is a shadow of its former self and its future remains in peril. For one, the company operates some well-known brands that have recently lost their market share as more families switch to live streaming. Some of its television brands include BET, MTV, Smithsonian Channel, and Comedy Central among others.
Paramount Global also has a mountain of debt. Its most recent results showed that its long–term debt stood at over $15 billion against cash and short-term investments of $1.7 billion. As a result, it has embarked on asset sales to boost its liquidity. Last week, it sold its Simon & Schuster publishing business to KKR for $1.6 billion.
Watch here: https://www.youtube.com/embed/RKX90W5O2SQ?feature=oembedAccording to the WSJ, Paramount has called off its sale of BET after it received a lukewarm reception. Bidders pegged the value of the company at between $2 billion and $3 billion. The management concluded that these funds will not reduce its debt substantially.
Paramount faces challenges
Paramount faces two major challenges, as I wrote here . It owns many traditional TV networks in a market that is shrinking. At the same time, the firm’s streaming ambitions are challenged by strong competition from companies like Disney and Netflix .
Data shows that Paramount+ has a 7% market share in the US, making it the sixth-biggest player in the industry. The challenge is that competing with companies like Amazon, Netflix, and Warner Bros. Discovery will not be easy.
The most recent results showed that the company’s growth has stalled. Its revenue came in at $7.2 billion, a 2% YoY decline. Subscriptions rose by 12% while filmed entertainment revenue slipped. Worse, its TV revenue dropped from $5.2 billion to $5.1 billion during the quarter.
On the positive side, the company is relatively undervalued compared to other media firms in the industry. A good way to look at it is through a sum of parts. In this case, the firm has a market cap of about $9 billion. BET’s valuation is between $2 billion and $3 billion.
Similarly, a brand like Paramount+ has over 60.7 million users, which could be valued at billions. Analysts at Wells Fargo believe that the sum of parts is worth about $30 billion, which is higher than the current market cap of less than $10 billion.
Despite all this, I believe that Paramount stock will continue languishing for a while. More downside will be confirmed if the stock drops below the support at $14.65. A drop below this level will see it retest the support at $13.
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