Why Paramount+ profitability may not be 'enough' for investors

Shares of Paramount Global (PARA, PARAA) fell as the company reported mixed fourth quarter earnings. While adjusted EPS beat, revenue missed estimates. Bloomberg Intelligence senior media analyst Geetha Ranganathan joins Yahoo Finance to discuss investor outlook amid M&A chatter.

While "fundamentals do matter," Ranganathan explains investors are focused on Paramount's potential "exit options." Warner Bros. Discovery (WBD) reportedly discussed a merger, which "makes sense" given Paramount's heavy exposure to television networks. However, Ranganathan notes a deal would have been a "financial death sentence" given both companies' heavy debt.

Ranganathan says the "biggest question" is whether streaming gains can offset linear TV declines at the company. While Paramount+ profitability is forecasted by 2025, Ranganathan questions if it's "enough" to keep investors engaged.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Angel Smith

Video transcript

JULIE HYMAN: Shares of Paramount little changed on the heels of its mixed earnings report. The company reporting a better-than-expected profit of $0.04 per share, but revenue did miss estimates. It was down 6% year-over-year. Let's bring in Gita Raghunathan, Bloomberg Intelligence Senior Media Analyst. Good to see you. I know we're looking through the earnings here, but let me just get the elephant out of the way ahead of time, Geetha. At this point, is all investors care about sale news from this company? Or are they still paying attention to these earnings?

GEETHA RANGANATHAN: I mean, fundamentals do matter, Julie, but obviously not as much for this company as those M&A rumors. And we've had plenty of those over the past few months. So at this point, I think investors kind of really trying to see what are the possible M&A exit options for this company. And those seem to be actually shrinking as each day passes.

JOSH LIPTON: Is there-- Geetha, when you think about potential acquirers, are there names that you think, yes, that could make strategic and financial sense?

GEETHA RANGANATHAN: So, you know, the big name obviously that came up maybe about two months ago was Warner Brothers Discovery around Christmastime, kind of entertaining this thought of combining the two companies. And of course, it makes a lot of sense. They both have heavy exposure to TV networks. They could extract a whole lot of synergies. There's obviously a lot to be said there.

But then you look at it, I think investors really did not like the idea at all. It would have been a financial death sentence for both of these companies, because debt, debt is a huge problem actually at both of them. Paramount has over $16 billion. Warner Brothers Discovery has close to about $45 billion. Investors did not like the idea at all. And you know, yesterday actually got the news that Warner Brothers Discovery is kind of walking away from-- walking away from that, looking at that deal.

So yeah, we have had some news from some other investors. Byron Allen has been one, who has actually come out with an offer on the table. I'm just not sure anybody is taking him very seriously. And then of course, there is kind of the one player who seems to be interested is Skydance Media, which is a studio. And I think they're really interested in the Paramount studio, which is absolutely a world class property.

But the problem is, again, that they are not interested in acquiring the TV networks business of paramount. And I'm not sure you know whether management will be open to selling pieces of the company as opposed to the whole company.

JULIE HYMAN: Well, let's talk about the pieces of the company for a moment here and what we learned in these results, which is that traditional ad business on those traditional networks not doing so hot. The streaming business, a little bit better than estimated both in terms of the numbers of subscribers and the magnitude of the losses here. So leaving aside a potential sale for a moment, if-- assuming a sale doesn't happen, let's pretend a sale is not going to happen, kind of where do they go from here with that dichotomy in the businesses?

GEETHA RANGANATHAN: Yeah. So really, the biggest question right now I think for investors is, is the progress on the streaming front or is the revenue and profitability on the streaming front ever going to be able to make up for that shortfall on the linear TV side? And the answer so far has been no. But there might be some green shoots here.

So one of the things that you pointed out, Julie, which is the one thing that everything-- everybody is looking at very closely is the magnitude of losses. And those did come down. So yes, they are making some progress. And the bigger news or the bigger positive is that they actually guided to Paramount Plus turning profitable in 2025. So that, again, is definitely a piece of good news.

Again, is that going to be enough? Not so sure, but it's definitely progress in case the obviously the sales-- the sale doesn't happen. So yes, they are making some progress. But you're absolutely right, the TV business is definitely being hit and being hit very, very hard. Ads were down 15%