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Paramount (NASDAQ:PARA) (PARAA) is likely to see continue ad headwinds, leading Bank of America to reiterate an Underperform rating on the stock.
“We anticipate Paramount’s [fourth-quarter] results will reflect a continuation of the choppy trends in the advertising market,” analysts led by Jessica Reif Ehrlich wrote in a note.
The bank projected fourth-quarter revenue will decline 7% year-over-year to $7.6B with a weaker box office slate and the lingering effects of the writer’s and actor’s strikes, which were settled in September and November, respectively.
“Despite initial hopes earlier in 2023 of a [second-half] recovery in advertising, it does not appear to be materializing and visibility remains limited if it will recover in ‘24,” the bank said.
The entertainment company is expected to report earnings on February 15. Analysts expect the company to break-even on an earnings per share basis for the quarter ended Dec. 31, with sales forecast to come in at $7.9B.
That said, the upcoming Super Bowl and political advertising in an election year will help ad revenue.
“There’s no question that the broader ad market continues to face challenges, impacted by inflation, economic uncertainty and weaker demand from some categories,” Chief Executive Officer Bob Bakish said on the earnings call in November. “And while the industry isn’t seeing the second half recovery we expected earlier in the year, there are a number of positive catalysts ahead that give us confidence as we continue to navigate the headwinds.”
For the quarter ended September 30, Paramount reported revenue of $7.13B and earnings of $0.30 per share, both of which beat estimates.
For sale?
Bank of America said the entertainment giant has an attractive collection of assets that could generate a lot of value in a potential sale. However, there’s no clarity as to what that might look like and how it could benefit or hurt investors, the analysts said.
Paramount controlling shareholder Shari Redstone has reportedly held talks about selling the company’s movie studio and other assets to Skydance, whose holders include RedBird Capital and David Ellison, the son of billionaire Larry Ellison.
Skydance, which produced the Paramount release Top Gun: Maverick, has emerged as a leading candidate to take over Redstone’s National Amusements, which has a controlling stake in Paramount.
Bloomberg also reported earlier this year that Paramount is in talks to sell Black Entertainment Television to a management-led investor group for about $2B.
Warner Bros. Discovery (WBD) is among the possible buyers of Paramount or its assets.
The company was recently upgraded by investment firm Moffett Nathanson amid merger speculation.
