Paramount Global is taking decisive action in its cost-saving initiatives as it awaits the completion of a significant merger deal with Skydance Media. The media, streaming, and entertainment powerhouse announced plans to reduce its U.S.-based workforce by nearly 15%, equating to an expected annual run rate cost savings of $500 million.
This move was elaborated by co-Chief Executive Chris McCarthy during a conference call where he discussed the company’s financial results for the second quarter of the year. According to a recent report from Capital IQ, this reduction reflects the company’s proactive approach in a period marked by transformation and strategic reform. The upcoming merger with production company Skydance aims to create a new entity through a two-step transaction, which is projected to conclude in the first half of 2025.
McCarthy underscored the importance of making the organization leaner by eliminating what he termed 'redundant' functions, particularly in the realms of marketing, communications, finance, legal, technology, and other support operations. He indicated that these actions will unfold in the coming weeks with most aspects finalized by the year’s end. Momentum around the merger has created a sense of anticipation among analysts, with MoffettNathanson providing insights on the transition.
Analysts, including Robert Fishman, indicated that barring unexpected last-minute bids before the set 'go-shop' deadline on August 21, Paramount is anticipated to transition under David Ellison's Skydance leadership. They referred to the current phase for Paramount as a 'lame duck period,' underscoring that despite the impending changes, the company is not stagnant in its operations. Amid these changes, Paramount reported that its second-quarter adjusted earnings saw a year-over-year increase, even though revenue fell short of Wall Street's forecast.
The company faced a notable impairment charge of $5.98 billion related to its cable networks unit, showcasing the challenges it faces in the current media landscape. Looking ahead, MoffettNathanson has adjusted its forecast for the TV media segment, predicting a 16% drop in earnings before interest, taxes, depreciation, and amortization (EBITDA) for both 2025 and 2026.
This revised outlook comes from a clearer understanding of how upcoming affiliate renewals will play out, paired with a more pessimistic view on the linear advertising market. On a more positive note, Paramount's direct-to-consumer (DTC) segment, although currently seen as a potential drag on overall profitability, recently achieved its first profitable quarter.
Analysts suggest that while losses in this sector may improve in 2025, significant contributions to EBITDA are likely still some time away. McCarthy remains optimistic, asserting that Paramount+ is poised to achieve domestic profitability next year and that active discussions are ongoing about potential partnerships to enhance the service’s reach and content offerings. The MoffettNathanson team emphasizes the potential for Paramount+ to benefit greatly from such a partnership, cautioning that as an independent entity, it may lack the capital required to invest in the substantial content base needed for global scaling.
The analysts express eagerness to understand how aggressively Skydance will allocate resources to advance DTC growth initiatives post-merger. Given the evolving dynamics, MoffettNathanson has adjusted its price target for Paramount’s stock from $12 to $10 while maintaining a neutral rating. The brokerage also updated its earnings forecast for 2024 to $1.30 per share, up from $1.05, while lowering the 2025 estimation from $1.30 to $1.15, demonstrating their cautious yet optimistic view of the company's trajectory going forward..