Hi David, great writeup! I've also been looking at Paramount closely and wanted to highlight a couple of things: 1) EBIT for CBS and the local stations in the years prior to the pandemic was closer to $2B. The $2.7-$3 includes EBIT for Showtime and S&S. I ultimately think the analysis by parts hinges on the multiple you could get for CBS. Also, although low revenue the local stations are very high EBIT% (50%+ from what I remember). It would be very interesting to know how their margins have been impacted the last 5 years. 2) I think Showtime is worth quite a bit more than $4B. EBIT in 2018 was $0.9B. It's also very high margin, I think largely due to the PPV events they put on. 3) I wouldn't subscribe any value to Paramount+ as I think if the company were to ultimately be sold for parts, it's a platform know for it's poor technology that's losing money. They also don't own any IP as it would have been sold off with the other parts. On this, do you know how pricing between Paramount+ and the internal studios works (i.e., how CBS, Nickolodeon, etc. charge Paramount+) for using their content? I assume they must do it on a fair market value basis.
I calculated a "conservative" total value of $35B, implying a double. What makes Paramount very interesting to me isn't actually the upside or potential surprise upside if it sells for parts or as a whole. It's the downside protection. I really don't think you can lose money here as you're protected by a library of very valuable assets that don't deplete, even if they continue to burn cash with Paramount+ for another couple of years. I'm thinking of upping to a 15-20% position.
Good work here. I agree with much of what you highlighted. I would however put the streaming at a $0 valuation and the Paramount library much higher than you showed. I believe content owners would be more profitable going back to licensing to a few of the 3rd party streamers (Netflix, Amazon, etc).
Even though I would put Paramount+ at $0, I still agree with your overall assessment of $0.20 to $0.30 on the dollar at these prices.
I'm honestly dying to know what the valuation this Arbitrator comes up with... As you have expertly covered in this piece, The valuations placed on Paramount based on market cap, and the bought and paid for ANALysts scream of wall street cartel suppression. Most of these ANALysts have barely over 50% success in their calls, yet investors still listen to these bought and paid for shills. Anyways.... very nice job on this piece!
Great great write up! Best I’ve seen by far. I am long the stock from $22 (but continue to buy) and have always believed the SOTP was much higher then even my buy in. With KKR on board, I believe Paramounts assets will be sold off to fund the movie studio and any other related assets Ellison wants. It looks like Redbird has investors that may be able to help offload unwanted assets. Again well done, thanks for sharing and I hope you clean up.
Nice writeup! Agree that streaming is a terrible business, which is why I’ve been ignoring PARA, but the valuation looks compelling.
Think you have to at least look at how terrible streaming is to judge the value of Paramount+... relying on a revenue multiple seems like an implicit bet on a “greater fool” as the only buyer. Granted, a lot of those in media.
Streaming seems to be in a race-for-scale stage of maturing, so would be interesting to see comparison of current players to see who has scale and who is sub-scale. My impression is PARA is subscale and only paths are sale/merger or multi-year capex grind to hit scale.
As long as everyone is competing for eyeballs, nobody is going to make serious money. I think, ironically, once we get back to 3 big players and ad-supported is the norm, they’ll be able to pull back on capex and gush cash, but you might be waiting a decade for that.
good writeup, But from what i've read, and what little is availible online about it, Hulu's final valuation is still in an independent arbitrators hands. Comcast and Disney's valuation numbers were significantly far apart, so it triggered a clause that a third party independent arbitrator has to come up with a number, and that is supposed to be decided shortly. That final number could cause a significant cascade in valuations of other assets mentioned in the article. Feel free to correct me if I'm wrong, but i cannot find any news on the arbitrators decision of the final value of Hulu.
Hi David, great writeup! I've also been looking at Paramount closely and wanted to highlight a couple of things: 1) EBIT for CBS and the local stations in the years prior to the pandemic was closer to $2B. The $2.7-$3 includes EBIT for Showtime and S&S. I ultimately think the analysis by parts hinges on the multiple you could get for CBS. Also, although low revenue the local stations are very high EBIT% (50%+ from what I remember). It would be very interesting to know how their margins have been impacted the last 5 years. 2) I think Showtime is worth quite a bit more than $4B. EBIT in 2018 was $0.9B. It's also very high margin, I think largely due to the PPV events they put on. 3) I wouldn't subscribe any value to Paramount+ as I think if the company were to ultimately be sold for parts, it's a platform know for it's poor technology that's losing money. They also don't own any IP as it would have been sold off with the other parts. On this, do you know how pricing between Paramount+ and the internal studios works (i.e., how CBS, Nickolodeon, etc. charge Paramount+) for using their content? I assume they must do it on a fair market value basis.
I calculated a "conservative" total value of $35B, implying a double. What makes Paramount very interesting to me isn't actually the upside or potential surprise upside if it sells for parts or as a whole. It's the downside protection. I really don't think you can lose money here as you're protected by a library of very valuable assets that don't deplete, even if they continue to burn cash with Paramount+ for another couple of years. I'm thinking of upping to a 15-20% position.
Good work here. I agree with much of what you highlighted. I would however put the streaming at a $0 valuation and the Paramount library much higher than you showed. I believe content owners would be more profitable going back to licensing to a few of the 3rd party streamers (Netflix, Amazon, etc).
Even though I would put Paramount+ at $0, I still agree with your overall assessment of $0.20 to $0.30 on the dollar at these prices.
I'm honestly dying to know what the valuation this Arbitrator comes up with... As you have expertly covered in this piece, The valuations placed on Paramount based on market cap, and the bought and paid for ANALysts scream of wall street cartel suppression. Most of these ANALysts have barely over 50% success in their calls, yet investors still listen to these bought and paid for shills. Anyways.... very nice job on this piece!
Great great write up! Best I’ve seen by far. I am long the stock from $22 (but continue to buy) and have always believed the SOTP was much higher then even my buy in. With KKR on board, I believe Paramounts assets will be sold off to fund the movie studio and any other related assets Ellison wants. It looks like Redbird has investors that may be able to help offload unwanted assets. Again well done, thanks for sharing and I hope you clean up.
Nice writeup! Agree that streaming is a terrible business, which is why I’ve been ignoring PARA, but the valuation looks compelling.
Think you have to at least look at how terrible streaming is to judge the value of Paramount+... relying on a revenue multiple seems like an implicit bet on a “greater fool” as the only buyer. Granted, a lot of those in media.
Streaming seems to be in a race-for-scale stage of maturing, so would be interesting to see comparison of current players to see who has scale and who is sub-scale. My impression is PARA is subscale and only paths are sale/merger or multi-year capex grind to hit scale.
As long as everyone is competing for eyeballs, nobody is going to make serious money. I think, ironically, once we get back to 3 big players and ad-supported is the norm, they’ll be able to pull back on capex and gush cash, but you might be waiting a decade for that.
Excellent write up. Definitely given me lots to think about.
good writeup, But from what i've read, and what little is availible online about it, Hulu's final valuation is still in an independent arbitrators hands. Comcast and Disney's valuation numbers were significantly far apart, so it triggered a clause that a third party independent arbitrator has to come up with a number, and that is supposed to be decided shortly. That final number could cause a significant cascade in valuations of other assets mentioned in the article. Feel free to correct me if I'm wrong, but i cannot find any news on the arbitrators decision of the final value of Hulu.
thanks for all this data and compliments!
I would like to ask you what you think about the difference that is accumulating between class A and class B shares
"My estimated lower range of valuation shows a private market value of 40.8–59.8B. (...)
This means that in the event of a sale or a breakup, Paramount would be worth more than 3–5 times the current price."
What's the EV on this puppy? IF you add debt, your upside diminishes dramatically.
Lovely writeup David. Thank you for sharing.