Streaming Expansion And Premium Sports Will Drive A Powerful Long Term Turnaround

Catalysts

About Paramount Skydance

Paramount Skydance is a global media and technology entertainment company that produces, distributes and monetizes premium film, television, sports, news, gaming and streaming content across platforms.

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

• The rapid global adoption of streaming is amplifying Paramount+ momentum, with strong recent subscriber growth, premium content additions such as UFC and South Park, and a more balanced year round programming strategy supporting higher engagement, rising ARPU and expanding direct to consumer revenue and earnings.
• The industry shift toward event driven sports and year round fan engagement strongly favors UFC and Zuffa Boxing. Their broad, younger fan base and the elimination of the double paywall should support sustained subscriber intake, lower churn and higher advertising yields, lifting both top line growth and segment level margins.
• The convergence of multiple streaming services onto a single unified technology platform, combined with Oracle Fusion and advanced AI tools for discovery and ad tech, is set to improve product quality and operating discipline. This can create structural cost efficiencies and working capital benefits that support higher net margins and free cash flow.
• The increasing value of high quality franchises and cinematic IP in a crowded media landscape underpins the plan to nearly double theatrical output and deepen creative partnerships. This can feed multiple distribution windows and consumer products, enhancing studio scale, licensing revenue and overall return on content spend.
• The growing importance of globally resonant broadcast and news brands, paired with the migration of viewing time and ad budgets from linear to digital, positions CBS, Pluto and the cable portfolio as powerful funnels into streaming and digital advertising. This supports long term revenue diversification, expanding digital ad revenue and improving consolidated profitability.

Assumptions

This narrative explores a more optimistic perspective on Paramount Skydance compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Paramount Skydance's revenue will grow by 3.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -0.9% today to 7.9% in 3 years time.
• The bullish analysts expect earnings to reach $2.5 billion (and earnings per share of $1.92) by about December 2028, up from $-272.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $674.1 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 13.3x on those 2028 earnings, up from -55.4x today. This future PE is lower than the current PE for the US Media industry at 16.1x.
• The bullish 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 8.04%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The aggressive plan to increase theatrical output to at least 15 films per year and add more than $1.5 billion of incremental programming spend across film, television, sports, news and gaming increases exposure to a hit driven, cyclical box office environment. A series of underperforming releases or weaker licensing demand could erode the expected scale benefits and weigh on revenue and earnings growth.
• The strategy hinges on rapidly scaling Paramount+ and the broader direct to consumer ecosystem in an intensely competitive global streaming market dominated by larger, better capitalized technology and media platforms. If subscriber growth, engagement or pricing power fall short of expectations, ARPU expansion could disappoint and segment level profitability could stall, pressuring consolidated margins.
• Management is targeting at least $3 billion of run rate efficiencies, significant working capital improvements and lower cash tax rates through Oracle Fusion, platform convergence and operating discipline. If these complex technology and integration projects are delayed, cost more than anticipated or disrupt operations, the company may not achieve its planned net margin expansion or free cash flow conversion.
• The linear portfolio, particularly cable networks such as MTV, Comedy Central and BET, faces accelerating cord cutting and structural advertising declines even as Paramount seeks to repurpose these brands for digital. If the transition of audiences and ad dollars into streaming and Pluto is slower or less profitable than planned, legacy revenue could fall faster than digital monetization ramps, compressing overall revenue and operating margins.
• The sizable long term commitments to premium sports rights such as UFC and Zuffa Boxing and to high profile creative talent and franchises assume ongoing strength of fan interest, favorable economics and pricing power. If audience tastes shift, rights renewal costs escalate more quickly than subscriber or ad revenue, or regulatory and competitive dynamics weaken bargaining leverage, content amortization could rise faster than associated revenue, reducing earnings and weighing on free cash flow.

Valuation

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

• The assumed bullish price target for Paramount Skydance is $19.69, which represents up to two standard deviations above the consensus price target of $14.86. This valuation is based on what can be assumed as the expectations of Paramount Skydance's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• 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 $12.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $31.9 billion, earnings will come to $2.5 billion, and it would be trading on a PE ratio of 13.3x, assuming you use a discount rate of 8.0%.
  
• Given the current share price of $13.74, the analyst price target of $19.69 is 30.2% 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.