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Paramount Global stock rallied by 12% following reports of a $11 billion offer from private equity firm Apollo Global Management to purchase Paramount Global’s studio operations. This offer comes amidst another bid by Skydance Media to merge with all of Paramount, potentially setting off a bidding war for the Hollywood studio. Paramount’s studio business is highly sought after, with valuable franchises like Star Trek and Transformers, as well as recent successful theatrical releases. Despite interest from companies like Netflix, the deal is not guaranteed as Shari Redstone, who controls 80% of voting shares, has resisted selling the studio standalone but is open to selling the entire company.

Paramount stock has declined by nearly 43% in the past year due to challenges in the linear TV advertising market and investments in the streaming business impacting profits. While revenue fell short of estimates in Q4 2023, earnings exceeded expectations and Paramount+ saw subscriber growth and increased revenue. Despite the stock’s decline of 65% since early 2021, it has underperformed the S&P 500 consistently over the past three years. In the current uncertain economic environment, there is speculation about whether Paramount will continue to underperform or see a recovery in the future.

At its current price of $12 per share, Paramount stock is considered attractive, especially since Apollo’s offer is higher than the company’s market cap. Despite challenges in its legacy TV business, Paramount’s earnings potential is expected to grow in the coming years, particularly in the streaming segment. With an expected domestic profitability for the streaming service from 2024 onward, the stock is trading at a low multiple of projected 2024 earnings compared to Netflix. An analysis values Paramount stock at $15 per share, indicating a 20% upside potential from the current market price.

While Paramount faces challenges in the TV advertising market and streaming investments have impacted profits, recent interest from Apollo Global Management and Skydance Media has increased speculation about the company’s future. Paramount’s strong legacy content and valuable franchises make it an attractive acquisition target, despite its recent stock performance. With potential for earnings growth and profitability in the streaming business, Paramount stock is viewed as undervalued at its current price and could see a rebound in the coming years. Investors are watching closely to see if a potential bidding war for Paramount will materialize and what the outcome will be for the storied Hollywood studio.

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