Paramount stock price is a bargain: Is it a good media company to buy?

Paramount Global (NYSE: PARA) stock price has been one of the most underperforming media companies this year. The stock has dropped by 10% in 2023 while Warner Bros Discovery (WBD) and Netflix (NFLX) shares have jumped by double-digits. PARA has plunged by more than 84% from the highest point in 2022.

Paramount growth worries

Paramount Global is a media company that emerged after Viacom and CBS merged. It is a diversified company that owns some of the most iconic brands in the media industry like CBS, Showtime, BET, Nickelodeon, and Pluto TV among others.

Paramount Global, like Warner Bros Discovery, is made up of legacy media franchises that are growing at a slower pace. I believe that some of its companies peaked many years ago. For example, while Nickelodeon is popular among children, it has been disrupted by YouTube. Similarly, demand for BET and MTV has been waning for years.

As a result, the company is now focusing on streaming, through its Paramount+ product that has over 60 million subscribers. Pluto TVC had over 80 million monthly active users. However, these streaming platforms are also losing millions of dollars every month. In the most recent quarter, the company reported a total loss of over $1 billion and canceled its dividend.

Paramount Global’s management are seeking to create value by selling some of its franchises. It has been in talks for the sale of BET. The company has also talked with companies like Netflix, who see value in its studio business. A key challenge for these companies is that Paramount carries legacy media platforms that are not all that profitable.

Analysts believe that the company’s studio business could be worth over $30 billion, higher than the current market cap of $10 billion. It is still unclear whether companies like Netflix, Apple, and Amazon will make a bid for the company. 

Is Paramount Global a good stock to buy?

PARA stock chart by TradingView

Paramount Global is clearly an extremely cheap company. For one, the company trades at a TTM PE ratio of 12.80, which is lower than the S&P 500 average and other media firms. This valuation discount is mostly because of the rising losses in its streaming business and the recent dividend cut. Paramount Global still has a dividend yield of over 5%.

The only reason to buy Paramount Global at this stage is a bet that the company will be acquired. But for that to happen, it needs to break itself again since most potential acquirers will want to avoid the legacy media business. In a recent note, a Wells Fargo analyst said:

“Shari Redstone has moved to consolidate core assets and her most recent commentary has seemed add to [direct-to-consumer] conviction. Without a studio, D2C is orphaned. We don’t think streamers like NFLX have any interest in PARA in its entirety so we’re suspect of an all-out takeout of PARA.”