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.
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.
Agree with you on Paramount+ though the customer relationship, (poor) technological capabilities and rights for content got to have at least some value. Actually, it's best if I copy and paste my comment to another question: "Yes, valuing Paramount+ is by far the hardest thing here. There is a wide range of probabilities, all of which make some sense. As you've indicated, PARA is likely a subscale player with a slim chance of ever being routinely profitable, as it needs to spend x amount of money just to prevent folks from unsubscribing. Luckily, the thesis is not reliant on Paramount+ to be profitable to work out, and I do think it shouldn't be valued as a complete 0, and that it shouldn't be valued at a Hulu-type valuation. Somewhere in between likely lies the truth, and my guess is as good as any"
And, yes- fair market value basis
Interesting take, I'd argue that time is not your friend here if they keep plowing money into streaming and with all the free content/streaming wars spending around somewhat depleting your library
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.
Thanks! Yes, valuing Paramount+ is by far the hardest thing here. There is a wide range of probabilities, all of which make some sense. As you've indicated, PARA is likely a subscale player with a slim chance of ever being routinely profitable as it needs to spend x amount of money just to prevent folks from unsubscribing.Luckily, the thesis is not reliant on Paramount+ to be profitable to work out and I do think it shouldn't be valued as a complete 0, and that it shouldn't be valued at a Hulu type valuation. Somewhere in between likely liest the truth and my guess is as good as any
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! Off the top of my head. I believe it's not fully closed yet but they agreed that Disney will pay at least 8.6B for the remaining 33%. Meaning a 26B valuation
Correct... 8.6 Billion is the floor, but from statements in the past, Brian Roberts has been claiming Hulu is likely worth 2-3 times more with the amount of subscribers Hulu has garnered, the quality of subscribers (lowest rate of sub cancelations), and the positive effect it has brought Disney+ since Hulu's partial intergration into the Disney+ platform. If the Arbitrator leans more towards the valuation Roberts feels it's worth, then that could (and should) be used as a template for all the other streaming platforms. If Hulu ends up being valued at 50-60 billion, what does that mean for a much more valuable Paramount, Warner Brothers Discovery, and Peacock? This Arbitrators final decision has potential to be a game changer for the whole sector.
Tbh I don't understand it. Shari can screw both the Class A and Class B shareholders if she wants to so there shouldn't be such a discount on the non-voting
My guess is that it is driven by low liquidity and float of the voting stock
I'm not in the business of hedging and don't mind the volatility.
Yes, 100%+ premiums are not common but also not unheard of. Also, IMO the bidding mania hasn't started yet, and the premium maybe won't be paid at the current levels.
I'm not cloning Buffett here, and don't mind if it's a small position for him
Well, it depends on who you consider a serious buyer?
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.
Are you working for Wells Fargo haha ;)
Thankss
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.
Hi, thanks for the insightful comment!
2B? Which page of the 10K should I open? I'd like to double-check that.
Agree, here are some interesting thoughts on the local stations from my friend here: https://x.com/david_katunaric/status/1751604776234557676?s=20
Agree with you on Paramount+ though the customer relationship, (poor) technological capabilities and rights for content got to have at least some value. Actually, it's best if I copy and paste my comment to another question: "Yes, valuing Paramount+ is by far the hardest thing here. There is a wide range of probabilities, all of which make some sense. As you've indicated, PARA is likely a subscale player with a slim chance of ever being routinely profitable, as it needs to spend x amount of money just to prevent folks from unsubscribing. Luckily, the thesis is not reliant on Paramount+ to be profitable to work out, and I do think it shouldn't be valued as a complete 0, and that it shouldn't be valued at a Hulu-type valuation. Somewhere in between likely lies the truth, and my guess is as good as any"
And, yes- fair market value basis
Interesting take, I'd argue that time is not your friend here if they keep plowing money into streaming and with all the free content/streaming wars spending around somewhat depleting your library
Thanks again. Great comment
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!
Thank you man!
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.
Thank you, man!! Yeah, looks like it.
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.
Thanks! Yes, valuing Paramount+ is by far the hardest thing here. There is a wide range of probabilities, all of which make some sense. As you've indicated, PARA is likely a subscale player with a slim chance of ever being routinely profitable as it needs to spend x amount of money just to prevent folks from unsubscribing.Luckily, the thesis is not reliant on Paramount+ to be profitable to work out and I do think it shouldn't be valued as a complete 0, and that it shouldn't be valued at a Hulu type valuation. Somewhere in between likely liest the truth and my guess is as good as any
Excellent write up. Definitely given me lots to think about.
Appreciate it friend!
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! Off the top of my head. I believe it's not fully closed yet but they agreed that Disney will pay at least 8.6B for the remaining 33%. Meaning a 26B valuation
Correct... 8.6 Billion is the floor, but from statements in the past, Brian Roberts has been claiming Hulu is likely worth 2-3 times more with the amount of subscribers Hulu has garnered, the quality of subscribers (lowest rate of sub cancelations), and the positive effect it has brought Disney+ since Hulu's partial intergration into the Disney+ platform. If the Arbitrator leans more towards the valuation Roberts feels it's worth, then that could (and should) be used as a template for all the other streaming platforms. If Hulu ends up being valued at 50-60 billion, what does that mean for a much more valuable Paramount, Warner Brothers Discovery, and Peacock? This Arbitrators final decision has potential to be a game changer for the whole sector.
Good point! I'm glad you highlighted it.
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
Thanks Paolo!
Tbh I don't understand it. Shari can screw both the Class A and Class B shareholders if she wants to so there shouldn't be such a discount on the non-voting
My guess is that it is driven by low liquidity and float of the voting stock
"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.
I did add debt later. Read
Lovely writeup David. Thank you for sharing.
Appreciate it man
Buyers will come whenever Shari wants them IMO. And I'm keeping my position at least for a 1-2 year period.
Hammered is an overstatement, it's still at my cost basis
Hey.
I'm not in the business of hedging and don't mind the volatility.
Yes, 100%+ premiums are not common but also not unheard of. Also, IMO the bidding mania hasn't started yet, and the premium maybe won't be paid at the current levels.
I'm not cloning Buffett here, and don't mind if it's a small position for him
Well, it depends on who you consider a serious buyer?
No upcoming material maturities. Take a look at the 10K