Paramount (PSKY)

Multinational media and entertainment corporation Paramount (NASDAQ:PSKY) met Wall Street’s revenue expectations in Q4 CY2025, but sales fell by 5.1% year on year to $8.15 billion. On the other hand, next quarter’s revenue guidance of $7.25 billion was less impressive, coming in 2.3% below analysts’ estimates. Its GAAP loss of $0.52 per share was significantly below analysts’ consensus estimates.

Company Overview

Owner of Spongebob Squarepants and formerly known as ViacomCBS, Paramount Global (NASDAQ:PARA) is a major media conglomerate offering television, film production, and digital content across various global platforms.

The Consumer Discretionary sector, by definition, is made up of companies selling non-essential goods and services. When economic conditions deteriorate or tastes shift, consumers can easily cut back or eliminate these purchases. For long-term investors with five-year holding periods, this creates a structural challenge: the sector is inherently hit-driven, with low switching costs and fickle customers. As a result, only a handful of companies can reliably grow demand and compound earnings over long periods, which is why our bar is high and High Quality ratings are rare.

Broadcasting companies produce and distribute television and radio content, generating revenue primarily through advertising and, in some cases, retransmission fees (payments cable and satellite operators make to carry local channels). Tailwinds include resilient demand for live sports and event programming, which commands premium ad rates, and political advertising during election cycles. Headwinds, however, are substantial: secular cord-cutting (consumers canceling traditional pay-TV subscriptions) is shrinking linear audiences, digital platforms are capturing an increasing share of advertising budgets, and content production costs continue to rise. Regulatory scrutiny over media consolidation and spectrum ownership further constrains strategic flexibility.

Competitors in the media and entertainment production industry include Disney (NYSE:DIS), Warner Bros. Discovery (NASDAQ:WBD), and Comcast (NASDAQ:CMCSA).

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, Paramount’s sales grew at a weak 2.7% compounded annual growth rate over the last five years. This fell short of our benchmarks and is a tough starting point for our analysis.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Paramount’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 1.3% annually.

We can dig further into the company’s revenue dynamics by analyzing its three most important segments: TV Media, Direct-to-Consumer, and Filmed Entertainment, which are 57.9%, 27.2%, and 15.4% of revenue. Over the last two years, Paramount’s TV Media revenue (broadcasting) averaged 7.1% year-on-year declines, but its Direct-to-Consumer (streaming) and Filmed Entertainment (movies) revenues averaged 10.3% and 22.1% growth.

This quarter, Paramount reported a rather uninspiring 5.1% year-on-year revenue decline to $8.15 billion of revenue, in line with Wall Street’s estimates. Company management is currently guiding for flat sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 3.8% over the next 12 months. Although this projection suggests its newer products and services will fuel better top-line performance, it is still below average for the sector.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Paramount’s operating margin has risen over the last 12 months, but it still averaged negative 7.3% over the last two years. This is due to its large expense base and inefficient cost structure.

In Q4, Paramount generated a negative 4.2% operating margin. The company's consistent lack of profits raise a flag.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Paramount, its EPS declined by 16.2% annually over the last five years while its revenue grew by 2.7%. This tells us the company became less profitable on a per-share basis as it expanded.

In Q4, Paramount reported EPS of negative $0.52, down from negative $0.33 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street is optimistic. Analysts forecast Paramount’s full-year EPS of negative $0.45 will flip to positive $0.60.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Paramount has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.4%, lousy for a consumer discretionary business.

Paramount’s free cash flow clocked in at $101 million in Q4, equivalent to a 1.2% margin. This cash profitability was in line with the comparable period last year and its two-year average.

Over the next year, analysts predict Paramount will flip from cash-producing to cash-burning. Their consensus estimates imply its free cash flow margin of 1.2% for the last 12 months will decrease to negative 1%.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Paramount historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 0.9%, lower than the typical cost of capital (how much it costs to raise money) for consumer discretionary companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Paramount’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Paramount reported $3.27 billion of cash and $14.81 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $3.08 billion of EBITDA over the last 12 months, we view Paramount’s 3.7× net-debt-to-EBITDA ratio as safe. We also see its $359 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was great to see Paramount’s full-year EBITDA guidance top analysts’ expectations. We were also happy its EBITDA outperformed Wall Street’s estimates. On the other hand, its EPS missed and its revenue guidance for next quarter fell short of Wall Street’s estimates. Zooming out, we think this was a mixed quarter. The stock remained flat at $10.17 immediately after reporting.

Updated: February 25, 2026 at 9:54 PM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Paramount, you should also grasp the company’s longer-term business quality and valuation.

Paramount doesn’t pass our quality test. While its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its Forecasted free cash flow margin suggests the company will ramp up its investments next year. On top of that, its declining EPS over the last five years makes it a less attractive asset to the public markets.

Paramount’s P/E ratio based on the next 12 months is 10.2x. While this valuation is fair, the upside isn’t great compared to the potential downside. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $14.39 on the company (compared to the current share price of $10.24).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.