Paramount Ad Slump, Streaming Losses Prompt Analyst To Cut Price Forecast

JPMorgan analyst David Karnovsky maintained an Underweight rating on Paramount Global (PARA), lowering the price target to $10 due to projected losses through 2026 driven by PayTV decline and macro risks, despite cost-cutting efforts and Paramount+ subscription strength. The analyst reduced fiscal 2025 consolidated OIBDA and TV Media advertising estimates, citing fewer sports inventory and softness at Pluto, while increasing subscription estimates due to price increases. Karnovsky also highlighted Walt Disney Co (DIS) with an Overweight rating, noting strong EPS guidance and positive trends in Disney+ and Hulu net additions.

Analysis

JPMorgan analyst David Karnovsky has reiterated an Underweight rating on Paramount Global (PARA) and reduced the price target from $11 to $10, signaling continued challenges. This outlook stems from anticipated losses through 2026, primarily driven by the persistent decline in PayTV and overarching macroeconomic risks, which are expected to negatively impact total company OIBDA and free cash flow. Despite acknowledging Paramount's solid Direct-to-Consumer (DTC) execution, cost-cutting initiatives, focus on DTC profitability, and efforts to improve its balance sheet, Karnovsky cites the company's valuation premium relative to peers, insufficient scale in DTC, significant linear TV exposure, and macro uncertainty as key concerns. Paramount's first-quarter OIBDA of $688 million did surpass the analyst's $649 million estimate. However, projections for fiscal 2025 have been revised downwards: consolidated OIBDA is now forecast at $2.81 billion (a 9.9% reduction from a prior 5.6% increase assumption), largely due to cuts in TV Media. Specifically, second-quarter TV Media advertising is expected at $1.62 billion (a 6.5% decline versus a prior 5.0% decline forecast), reflecting reduced sports inventory, with further deterioration anticipated in the latter half of the year. Fiscal 2025 TV Media advertising is now estimated at $6.91 billion (a 15.6% decline, albeit an improvement from a prior 17.5% decline forecast after Q1's beat). TV Media OIBDA ex-Super Bowl was estimated to be down approximately 17% in the first quarter, with similar declines projected for the second and third quarters, leading to a fiscal 2025 TV Media OIBDA estimate of $3.46 billion (a 20.5% decline versus a prior 14.8% decline). For the DTC segment, fiscal 2025 advertising estimates were lowered to $2.06 billion (a 2.6% decline versus a prior 8.3% increase) due to softness at Pluto offsetting Paramount+ strength. Conversely, fiscal 2025 DTC subscription revenue estimates were increased to $6.46 billion (a 17.3% increase versus a prior 14.8% increase), benefiting from price increases, and fiscal 2025 DTC OIBDA is now projected at a loss of $96 million, an improvement from the previously forecasted loss of $158 million. In contrast, Karnovsky maintains an Overweight rating on Walt Disney Co (DIS) with a $130 price target, citing raised EPS guidance, management's confirmation of a long-term double-digit growth outlook on a higher base, a return to growth for Disney+ net additions, and strong Hulu net adds exceeding 1 million for two consecutive quarters. Disney is seen as effectively navigating macro headwinds, with robust sports advertising and an improved operating income guide for its Experiences segment. Disney's stock is considered attractively priced at 17.5 times Karnovsky’s fiscal 2026 EPS estimate compared to the market's 20 times. The overall sentiment from the article is negative, driven by the pessimistic outlook for PARA, while DIS receives a positive assessment.

Key Decisions for Investors

• Investors in Paramount Global (PARA) should exercise caution due to the analyst's lowered price target, persistent PayTV headwinds, and projected losses through 2026, despite improvements in DTC OIBDA.
• Consider monitoring PARA's ability to offset linear declines with DTC growth and manage macro risks, particularly in advertising, before adjusting positions, given the analyst's maintained Underweight rating and concerns over scale and valuation.
• For investors seeking exposure to the media sector, Walt Disney Co (DIS) presents a more favorable outlook according to this analysis, with strong DTC momentum, positive earnings guidance, and a relatively attractive valuation, warranting consideration for a long position.
• Evaluate the diverging prospects within the media industry, particularly the challenges facing traditional TV media against the growth trajectory and profitability path of DTC services when making allocation decisions.