Wells Fargo Downgrades Paramount Shares on Weakness in Linear

By Senad Karaahmetovic

Paramount Global (NASDAQ:) is downgraded to Equal Weight from Overweight at Wells Fargo today as the new base-case scenario calls for “flattish and lower EBITDA.”

While analysts have praised the company’s execution and content strategy, they are “increasingly worried about the linear ecosystem across Media and this strips away visibility into what we were playing for as bulls: a trough in earnings with streaming driving growth on the other side.”

The price target is slashed by over 50% to $19 to reflect new estimates, which “have a downside bias due to the challenges ahead.”

“Not so long ago it looked like a lot of Media stocks would pull off DTC pivots, so they garnered higher multiples based on SOTP valuation. Now, the probability of the pivots is rendered lower due to the aforementioned linear ecosystem pressures + the competitive set in streaming. Sub-$10bn streaming businesses may very well have more like 10-15% margins, so the linear-to-streaming pivot is a lower multiple transition for all but the biggest,” the analysts explained in a client note.

Paramount reported 46 million subscribers for its Paramount+ streaming service as of Q3 2022. In a different market environment, subscriber growth might have been sufficient to drive upside in the PARA stock, they added.

“But, now the linear ecosystem is crumbling, in our view, and it threatens to create significantly more earnings pressure for companies like PARA. DTC could be a good business, but it’s likely going to take a lot of time to scale,” the analysts concluded.

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