PARA

Investing Strategies Falling Knives
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Everyone hates streaming services right now. NTFL, WBD, and PARA. Paramount, which used to be Viacom, looks like a fair bargain at current prices, especially when you look at the shares over ten years. In 2012 the price of PARA (VIAB) ranged from ~$27-38. In 2022 the price has ranged from $25-39. The share price has stagnated for over a decade now (except for the COVID bubble of 2021). Currently the shares are trading at an 11 year low. In the meantime they have doubled revenues, increased earnings by 38% despite collapsing margins, and sport a PE of 4. They still make money, generate ample free cash flow, and sport a 2.75% dividend yield. Granted, that yield is not attractive in the current environment, but it’s well covered.

Revenues in 2012 = $14.1 billion
Revenues in 2021 = $28.6 billion

Earnings in 2012 = $1.7 billion
Earnings in 2021 = $2.3 billion

Share count in 2012 = 629 million
Share count in 2021 = 648 million

EPS in 2012 = $2.55
EPS in 2021 = $3.51

The biggest problem for Paramount over the past decade is shrinking margins, which have declined from nearly 12% in 2012 to just 8% in 2021, as well as the unfavorable cord cutting environment they operate in right now. Valueline expects the transition to a streaming platform to work and to drive net margins up once the initial investment is made, so an investment in PARA is a bet on getting their ship in order.

While the steaming environment seems crowded at the moment, Paramount is a major content produce in both the large and small screen formats, and the consumption of viewable content is not going away. I think PARA is favorably priced at the moment, as are WBD and NFLX, and I am investing in all of them and letting the market decide who the winners will be. In the end, I expect them all to win.

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I am looking at this name too, but haven’t pulled the trigger. A lot of debt and they need to make a lot of new investment, but mostly i personally don’t know enough about this industry. Not much insights.

There’s also large insider purchases for para.

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The biggest problem I have with streaming as an industry is that it has never been recession tested. We have no idea how consumers will behave when they start cutting back. The services are so easy to cancel.

I love the Paramount service so far. Every time I think about cancelling it, it seems like they add something new I want to watch. I would rate it in my top 3 to keep right now, behind Netflix and Disney+. It’s hard to rank Amazon Prime because I rarely watch anything on it, but I love the quick free shipping.

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While the steaming environment seems crowded at the moment, Paramount is a major content produce in both the large and small screen formats, and the consumption of viewable content is not going away.

It seems reasonable to assume that the number of streaming services a person will subscribe to is limited.
So it’s reasonable to assume some shakeout: there are too many right now.

But you do point out some good merits.
I think a certain margin of safety is offered by the concept of white label streaming:
even if their streaming service doesn’t survive a shakeout for any reason, their content can still be sold (or streamed directly) under the aegis of another streaming service.
That can be profitable. After all, the margins of the typical streaming service are not great in the best of times, so giving up that last fillip of branding margin isn’t that big a deal.
I’d rather be selling to someone running at or near a loss than be selling myself at or near a loss.
As a fallback, it doesn’t sound so bad.

Jim

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After all, the margins of the typical streaming service are not great in the best of times, so giving up that last fillip of branding margin isn’t that big a deal. I’d rather be selling to someone running at or near a loss than be selling myself at or near a loss.

Why do I see a parallel here…

The cloud is a hardware business, commodity business with no margin… Amazon shareholders are subsidizing AWS customers…

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They definitely will benefit and maybe the stock shall worth more now that WEB invests in their stock.

They have a huge debt pile and need to make a lot of investment. Having Buffett as an investor will not only opens up some opportunities (at minimum consultation with the master) and also more Capital shall they need it.

If this company has no debt, it will worth a lot more. The debt they have right now have pretty high interest rates.

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Pleased to see a discussion of PARA! Wish it had its own Board. For what it’s worth, as a viewer I’ve found Netflix to be increasingly disappointing as to content, and it’s “suggested for you” algo is a joke. Much prefer Amazon on both those fronts. I subscribed to PARA through Amazon which makes it easy to try any number of new channels with easy cancellation. I hope PARA followers continue to post.

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While the steaming environment seems crowded at the moment, Paramount is a major content produce in both the large and small screen formats, and the consumption of viewable content is not going away.

It seems reasonable to assume that the number of streaming services a person will subscribe to is limited.
So it’s reasonable to assume some shakeout: there are too many right now.

What comes to mind is an aggregator affording subscribers with relatively inexpensive access to all or most available content. The aggregator would form associations with the major streaming providers.

I, for one, am willing to go with Netflix, Amazon Prime, HBO Max, along with relatively expensive satellite DirecTV. I’ve been eying Hulu TV as a possible replacement for DirecTV. The point is there’s a limit to what many are willing to pay for satisfactory access to news and entertainment. And the providers are increasing their rates, with DirecTV playing all sorts of pricing games to retain customers while increasing revenue. AT&T is distancing itself from its venture into entertainment, most prominent its acquisition of DirecTV.

So this looks like a massive audience with diverse appetites for a finite array of offerings. Might this represent an opportunity for an aggregator capable of delivering all content to the public on demand?

The question is how many, if any, of the providers would be willing to engage with such an aggregator. And under what terms? All parties would have to be induced to participate: content providers, aggregator, individual subscribers. The aggregator could even be significantly owned by providers, assuming collusion wouldn’t be chargeable, and possibly by subscribers as well. Maybe ownership would have to remain below 10%.

So the aggregator would have to assemble a comprehensive array of offerings that it can provide at a profit for a price less than the average amount subscribers are now paying to stream content.

Subscriptions would ideally be priced on the basis of what’s actually watched or recorded, with consumption determining remuneration to providers. They’d be an avenue to matching consumption and availability.

While this may seem absurd, it does satisfy a burgeoning demand by equitably conveying viewer dollars to appropriate content providers.

Tom

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