PARA Q1 Earnings Call: Management Emphasizes Content Investment, Streaming Progress, and Cost Discipline

Multinational media and entertainment corporation Paramount (NASDAQ:PARA) beat Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 6.4% year on year to $7.19 billion. Its non-GAAP profit of $0.29 per share was 12% above analysts’ consensus estimates.

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StockStory’s Take

Paramount’s first quarter results were shaped by a combination of ongoing investment in original content, a disciplined approach to cost management, and continued subscriber growth in its streaming division. Management highlighted the notable increase in Paramount+ global subscribers, driven by high-profile releases such as "Landmine" and "1923," as well as the sustained engagement from established franchises like South Park and Yellowstone. Co-CEO Chris McCarthy stated, "Paramount+ revenue increased 16% year-over-year," attributing this to the company’s focus on fewer, larger original series and improved churn metrics. Additionally, the film segment benefited from the theatrical and streaming success of "Sonic the Hedgehog 3," which contributed to improved performance across both home entertainment and streaming platforms.

Looking ahead, Paramount’s outlook centers on achieving domestic profitability for Paramount+ and leveraging its extensive content library to support growth across both streaming and traditional TV. Management acknowledged the volatile advertising market and the impact of increased digital video supply, but CFO Naveen Chopra said, "Our priorities for the full year have not changed. We continue to expect to deliver Paramount+ domestic profitability for 2025." The company also emphasized upcoming launches, including new Yellowstone franchise series and original productions, as critical for maintaining subscriber engagement. Management cautioned that macroeconomic uncertainty, particularly in advertising, could affect results but reaffirmed its commitment to cost controls and investment in key growth initiatives.

Key Insights from Management’s Remarks

Management attributed first quarter results to streaming subscriber growth, franchise-driven content engagement, and cost reductions, while noting digital advertising headwinds and an evolving competitive landscape.

• Streaming subscriber momentum: Paramount+ added 1.5 million global subscribers in the quarter, reaching 79 million, driven by original series and exclusive franchise content. Global watch time per user increased 17% year-over-year, and churn declined by 130 basis points, supporting higher subscription revenue.

• Content strategy focus: The company maintained its approach of producing fewer, larger original series, which management credits for increasing engagement and powering subscriber growth. High-performing titles such as "Landmine" and "1923" ranked among the top streaming original launches, with new franchise extensions planned for later in the year.

• Film segment performance: The theatrical release of "Sonic the Hedgehog 3" generated strong box office results and contributed to a significant boost in streaming and home entertainment revenue. "Gladiator 2" also became the most streamed movie in Paramount+ history, demonstrating the enduring appeal of established intellectual property.

• Advertising market pressures: Digital advertising revenue faced downward pressure due to an oversupply of digital video inventory, particularly impacting Pluto TV. Management expects these supply-demand imbalances to stabilize over time but has not yet observed improvement.

• Progress on cost control: Paramount reported a 35% reduction in average production costs for studio films over the past two years and continued to implement non-content expense cuts across segments, which contributed to margin expansion and improved operating results.

Drivers of Future Performance

Paramount’s guidance is shaped by its focus on streaming profitability, disciplined content investment, and a cautious outlook on advertising and affiliate revenues.

• Streaming profitability targets: Management reiterated its goal of achieving domestic profitability for Paramount+ in the current year, citing ongoing efforts to boost subscriber growth, reduce churn, and increase average revenue per user (ARPU). The company expects these improvements, combined with fixed cost leverage, to drive better margins in the streaming segment.

• Advertising and affiliate headwinds: The company anticipates continued volatility in the advertising market due to macroeconomic dynamics and digital inventory oversupply, particularly on Pluto TV. Affiliate and linear TV revenues are expected to decline at a rate similar to recent quarters, primarily driven by pay TV subscriber losses, but partially offset by successful affiliate renewals.

• Content-driven engagement: Paramount plans to launch multiple new originals and franchise extensions, including new Yellowstone spin-offs and returning series, to retain and attract subscribers. Management believes that leveraging its intellectual property portfolio is essential for sustaining engagement and supporting growth in both streaming and traditional TV.

Catalysts in Upcoming Quarters

In the coming quarters, our analysts will monitor (1) Paramount’s ability to achieve streaming profitability targets, particularly for Paramount+ in the U.S.; (2) stabilization in digital advertising revenues as supply-demand dynamics evolve; and (3) the performance of upcoming original content and franchise launches in attracting and retaining subscribers. Cost discipline and the outcome of the pending Skydance transaction will also be important to watch.

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