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Multinational media and entertainment corporation Paramount (NASDAQ:PARA) missed analysts' expectations in Q2 CY2024, with revenue down 10.5% year on year to $6.81 billion. It made a non-GAAP profit of $0.54 per share, improving from its profit of $0.12 per share in the same quarter last year.
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Paramount (PARA) Q2 CY2024 Highlights:
- Revenue: $6.81 billion vs analyst estimates of $7.24 billion (5.9% miss)
- EPS (non-GAAP): $0.54 vs analyst estimates of $0.13 (321% beat)
- Gross Margin (GAAP): 35.9%, up from 31.4% in the same quarter last year
- Free Cash Flow of $10 million, down 95.2% from the previous quarter
- Market Capitalization: $7.48 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 GrowthA company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one tends to grow for years. Regrettably, Paramount's sales grew at a weak 1.2% compounded annual growth rate over the last five years. This shows it failed to expand in any major way and is a rough starting point for our analysis.
Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Paramount's recent history shows its demand slowed as its revenue was flat over the last two years.
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 62.7%, 27.6%, and 10% of revenue. Over the last two years, Paramount's TV Media revenue (broadcasting) averaged year-on-year declines of 7.3%. On the other hand, its Direct-to-Consumer revenue (streaming) averaged year-on-year growth of 0.7% while its Direct-to-Consumer revenue (streaming) was flat.
This quarter, Paramount missed Wall Street's estimates and reported a rather uninspiring 10.5% year-on-year revenue decline, generating $6.81 billion of revenue. Looking ahead, Wall Street expects sales to grow 4.4% over the next 12 months, an acceleration 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.
Paramount broke even from a free cash flow perspective over the last two years, giving the company limited opportunities to return capital to shareholders.
Paramount broke even from a free cash flow perspective in Q2. This quarter's result was good as its margin was 2.9 percentage points higher than in the same quarter last year, but we wouldn't read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends are more important.
Over the next year, analysts predict Paramount's cash conversion will slightly fall. Their consensus estimates imply its free cash flow margin of 3.5% for the last 12 months will decrease to 1.6%.
Key Takeaways from Paramount's Q2 Results We were impressed by how significantly Paramount blew past analysts' adjusted EBITDA expectations this quarter despite a revenue miss. It was a mixed quarter, but the stock traded up 5% to $10.72 immediately following the results.
