Paramount (PSKY)

Multinational media and entertainment corporation Paramount (NASDAQ:PARA) met Wall Street’s revenue expectations in Q2 CY2025, but sales were flat year on year at $6.85 billion. Its non-GAAP profit of $0.46 per share was 24.6% above 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.

Broadcasting companies have been facing secular headwinds in the form of consumers abandoning traditional television and radio in favor of streaming services. As a result, many broadcasting companies have evolved by forming distribution agreements with major streaming platforms so they can get in on part of the action, but will these subscription revenues be as high quality and high margin as their legacy revenues? Only time will tell which of these broadcasters will survive the sea changes of technological advancement and fragmenting consumer attention.

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

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Paramount grew its sales at a weak 2.3% compounded annual growth rate. This was below our standards and is a tough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Paramount’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 2% annually.

Paramount also breaks out the revenue for its three most important segments: TV Media, Direct-to-Consumer, and Filmed Entertainment, which are 58.6%, 31.5%, and 10.1% of revenue. Over the last two years, Paramount’s TV Media revenue (broadcasting) averaged year-on-year declines of 8.1%. On the other hand, its Direct-to-Consumer revenue (streaming) averaged year-on-year growth of 0.8% while its Direct-to-Consumer revenue (streaming) was flat.

This quarter, Paramount’s $6.85 billion of revenue was flat year on year and in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to decline by 1.7% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and indicates its newer products and services will not accelerate its top-line performance yet.

Paramount’s operating margin has been trending up over the last 12 months, but it still averaged negative 5.7% over the last two years. This is due to its large expense base and inefficient cost structure.

In Q2, Paramount generated an operating margin profit margin of 5.8%, up 83.9 percentage points year on year. This increase was a welcome development and shows it was more efficient.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for Paramount, its EPS declined by 23.5% annually over the last five years while its revenue grew by 2.3%. This tells us the company became less profitable on a per-share basis as it expanded.

In Q2, Paramount reported adjusted EPS at $0.46, down from $0.54 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Paramount’s full-year EPS of $1.13 to grow 19.2%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and 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 2.7%, lousy for a consumer discretionary business.

Paramount’s free cash flow clocked in at $114 million in Q2, equivalent to a 1.7% margin. This result was good as its margin was 1.5 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends carry greater meaning.

Over the next year, analysts’ consensus estimates show they’re expecting Paramount’s free cash flow margin of 1.8% for the last 12 months to remain the same.

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 2.5%, 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. Unfortunately, Paramount’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Paramount reported $2.74 billion of cash and $14.51 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 $2.78 billion of EBITDA over the last 12 months, we view Paramount’s 4.2× net-debt-to-EBITDA ratio as safe. We also see its $350 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.

We enjoyed seeing Paramount beat analysts’ EPS expectations this quarter. We were also happy its EBITDA outperformed Wall Street’s estimates. On the other hand, its Direct-to-Consumer revenue missed. Overall, we think this was a decent quarter with some key metrics above expectations. The stock remained flat at $12.50 immediately after reporting.

Updated: November 8, 2025 at 10:03 PM EST

Before making an investment decision, investors should account for Paramount’s business fundamentals and valuation in addition to what happened in the latest quarter.

We see the value of companies helping consumers, but in the case of Paramount, we’re out. First off, its revenue growth was weak over the last five years. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its declining EPS over the last five years makes it a less attractive asset to the public markets. On top of that, its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

Paramount’s P/E ratio based on the next 12 months is 15x. While this valuation is reasonable, we don’t see a big opportunity at the moment. There are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $14.17 on the company (compared to the current share price of $15.13).