Paramount (NASDAQ:PARA) Misses Q1 Sales Targets By Stock Story

Multinational media and entertainment corporation Paramount (NASDAQ:PARA)
missed analysts’ expectations in Q1 CY2024, with revenue up 5.8% year on year to $7.69 billion. It made a non-GAAP profit of $0.62 per share, improving from its profit of $0.11 per share in the same quarter last year.

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Paramount (PARA) Q1 CY2024 Highlights:

• Revenue: $7.69 billion vs analyst estimates of $7.74 billion (0.7% miss)
• EPS (non-GAAP): $0.62 vs analyst estimates of $0.36 (73.7% beat)
• Gross Margin (GAAP): 32.9%, up from 31.7% in the same quarter last year
• Free Cash Flow of $209 million, down 52.8% from the previous quarter
• Market Capitalization: $8.36 billion

BroadcastingBroadcasting companies have been facing secular headwinds in the form of consumers abandoning traditional television and radio in favor of streaming services. As a result, many broadcasting companies have evolved by forming distribution agreements with major streaming platforms so they can get in on part of the action, but will these subscription revenues be as high quality and high margin as their legacy revenues? Only time will tell which of these broadcasters will survive the sea changes of technological advancement and fragmenting consumer attention.

Sales GrowthReviewing a company’s long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years. Paramount’s annualized revenue growth rate of 1.9% over the last five years was weak for a consumer discretionary business. Within consumer discretionary, a long-term historical view may miss a company riding a successful new product or emerging trend. That’s why we also follow short-term performance. Paramount’s annualized revenue growth of 2.7% over the last two years aligns with its five-year revenue growth, suggesting the company’s demand has been stable.

We can better understand the company’s revenue dynamics by analyzing its three most important segments: TV Media, Direct-to-Consumer, and Filmed Entertainment, which are 68.1%, 24.5%, and 7.9% of revenue. Over the last two years, Paramount’s TV Media revenue (broadcasting) averaged 5% year-on-year declines, but its Direct-to-Consumer (streaming) and Filmed Entertainment (movies) revenues averaged 37.3% and 18.7% growth.

This quarter, Paramount’s revenue grew 5.8% year on year to $7.69 billion, missing Wall Street’s estimates. Looking ahead, Wall Street expects sales to grow 1.3% over the next 12 months, a deceleration from this quarter.

Cash Is KingAlthough earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Over the last two years, Paramount broke even from a free cash flow perspective, subpar for a consumer discretionary business.

Paramount’s free cash flow came in at $209 million in Q1, equivalent to a 2.7% margin. This result was great for the business as it flipped from cash flow negative in the same quarter last year to cash flow positive this quarter. Over the next year, analysts predict Paramount’s cash profitability will fall to break even. Their consensus estimates imply its LTM free cash flow margin of 2.7% will decrease by 2 percentage points.

Key Takeaways from Paramount’s Q1 Results
It was good to see Paramount’s EPS and free cash flow beat Wall Street’s estimates. On the other hand, its revenue fell short of expectations as its TV media and filmed entertainment segments performed poorly. Overall, the results could have been better. The stock is flat after reporting and currently trades at $12.29 per share.