Expanded Film Slate And Streaming Platform Integration Will Reshape Long Term Earnings Profile

Catalysts

About Paramount Skydance

Paramount Skydance is a global media company that produces and distributes film, television, streaming, animation, gaming, news and sports content supported by a large content library.

What are the underlying business or industry changes driving this perspective?

• The planned expansion of theatrical output to at least 15 films per year from 2026, combined with over US$1.5b of incremental programming investment across film and streaming, is intended to build a larger, recurring slate that can support box office, downstream licensing and streaming revenue, which can feed through to earnings.
• The push to scale Paramount+ globally through more premium content, sports such as UFC and Zuffa Boxing and South Park, as well as year round programming, ties into ongoing consumer adoption of streaming and is intended to drive higher subscribers and ARPU, which directly affects revenue and segment margins.
• The consolidation of Paramount+, Pluto and BET+ onto a single tech platform and the Oracle Fusion enterprise rollout are intended to simplify operations and ad tech, which can help reduce run rate costs toward the US$3b efficiency target and support net margins and free cash flow.
• The focus on using CBS broadcast and key cable brands such as Nickelodeon, MTV, Comedy Central and BET to feed streaming and consumer products aligns with long term shifts from linear to digital viewing and digital advertising, which can help stabilize or grow total audience reach and advertising revenue, with potential margin support as weaker assets are divested.
• The UFC and South Park agreements, along with long term deals with high profile creators and gaming IP such as Call of Duty, use the global appeal of premium franchises across film, streaming, licensing and consumer products, which can support multi year revenue visibility and contribute to operating income and free cash flow once initial investment cycles moderate.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Paramount Skydance's revenue will grow by 3.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.9% today to 5.6% in 3 years time.
• Analysts expect earnings to reach $1.8 billion (and earnings per share of $1.61) by about January 2029, up from $-272.0 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 14.2x on those 2029 earnings, up from -48.6x today. This future PE is lower than the current PE for the US Media industry at 14.8x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.51%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The plan to increase annual theatrical output from roughly 8 films to at least 15 from 2026 concentrates more capital in a part of the industry where performance for each title can be highly uneven, so a weak slate or audience fatigue could limit box office and downstream licensing, which would affect revenue and earnings.
• Paramount+ is being positioned as a global scaled platform with heavy spend on sports like UFC and Zuffa Boxing and on premium series. However, if subscriber growth, engagement or pricing do not keep pace with this higher content bill, the direct to consumer segment may struggle to reach or sustain the profitability and free cash flow profile that management is targeting.
• The company is relying on consolidating Paramount+, Pluto and BET+ onto a single platform and rolling out Oracle Fusion across the group to reach at least US$3b of efficiency gains. Any delays, cost overruns or technical issues in these projects could keep run rate costs higher for longer, which would weigh on margins and operating income.
• Long term cord cutting and accelerating pressure on cable networks are already acknowledged by management. If efforts to reposition channels such as Nickelodeon, MTV, Comedy Central and BET for digital viewing underperform, the company could see a faster decline in linear advertising and affiliate revenue than the streaming and licensing businesses can offset, which would affect total revenue and segment margins.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $14.57 for Paramount Skydance based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $20.0, and the most bearish reporting a price target of just $10.5.
  
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be $31.5 billion, earnings will come to $1.8 billion, and it would be trading on a PE ratio of 14.2x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of $12.04, the analyst price target of $14.57 is 17.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.