Why Is Paramount (NASDAQ: PARA) Failing?

What’s happening with Paramount Global (NASDAQ: PARA)? The entertainment company’s future viability is in question following the collapse of potential acquisition deals and lack of new suitors. The company's stock is down over 2% in recent trading, reflecting investor concerns. But wait: PARA stock is now rising on news that a merger with Skydance, which was off as of mid-June, is now back on again!

Paramount has had its share of problems, from criticism of its content strategy and cost-cutting measures to a mass exodus of staff and the questionable attempt to offset streaming losses with revenue from "Paw Patrol" toy sales and property sales.

Despite challenges, Paramount is exploring new initiatives, such as a plan to sell its studio lot with a buy-back option, potentially generating $2 billion in income.

How We Got Here

Perhaps fitting for an entertainment company, there has been a lot of drama going on. Recent leadership changes, uneven returns from its business segments (streaming platform Paramount+, TV Media, and Filmed Entertainment), and big competition like Disney and Comcast have created major headwinds.

Over the past fiscal year, the company reported a loss of $608 million. In just the last quarter, they were down $554 million. Add the higher operating costs, and you can see the problem. With major debt and low cash reserves, Paramount has some major challenges to stay competitive.

Negotiations for the promising Paramount-Skydance merger broke down suddenly on June 11. This was very bad news for Paramount. After Viacom and CBS reunited in 2019, the company was worth $30 billion. Fast forward to June 17, after the merger fell through, Paramount Global’s market cap was below $7 billion.

Off And On Again!

Just like that, the deal is (apparently) on again. The company’s shares had their biggest leap for two months on news of the “merger phoenix” that has, it seems, risen from the ashes. On Wednesday, the stock rose as high as 13% and is now trading at around $11.48. The latest information, from CNBC, is that Skydance would purchase 50% of Paramount's Class B non-voting stock at $15 per share. According to the Wall Street Journal, this deal includes a 45-day period during which other bidders could make offers.  

What The Analysts Are Saying

While it may take some time for Wall Street to catch up with Paramount’s latest episode, the consensus rating from 26 analysts is a Hold, with a 12-month price target of $11.68 and a high estimate of $19. This seems to be one of those “wait and see” moments.

At this critical juncture, the company's strategy and financial health are under scrutiny. They must be able to cut costs while generating new partnerships and revenue streams for future success. Analysts and industry observers express skepticism about its long-term prospects. However, if the Skydance marriage goes through, that may change.

Neither Julie Stoller nor Stocks.News have positions in this company.