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Stock Analyst Update

Paramount+ Sub Growth Remains Robust

Paramount posted a decent start to an already turbulent 2022 as Paramount+ and Pluto delivered strong growth, with 6.8 million net subscriber additions and a 3.1 million increase in monthly active users, respectively. We maintain our fair value estimate of $58.

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Paramount (PARA) posted a decent start to an already turbulent 2022 as Paramount+ and Pluto delivered strong growth, with 6.8 million net subscriber additions and a 3.1 million increase in monthly active users, respectively. The growth at Paramount+ was impressive given the losses at Netflix this quarter. Total revenue fell slightly due to the tough comp against broadcasting the Super Bowl in 2021, but the firm’s direct-to-consumer, or DTC, growth engine expanded its top line by 82%, with strength in advertising and subscription. Paramount has debuted a new segment structure that separates its streaming efforts from the legacy networks and studios. We expect top-line growth over the near term to be driven mostly by the expansion of the firm’s DTC segment. We maintain our fair value estimate of $58.

Revenue declined 1% during the first quarter, as streaming growth was offset by declines in broadcast and filmed entertainment. DTC revenue jumped to $1.1 billion, with subscription revenue up 95% to $742 million and ad revenue improving by 59% to $347 million. Paramount+ benefited from the strong NFL playoffs along with the debuts of 1883, Halo, and the second season of Star Trek: Picard. Paramount+ now has 40 million subscribers and the firm now has over 62 million total DTC subscribers across services. Continued growth at Pluto and the June 2021 launch of Paramount+ Essential, a lower priced ad-supported tier, boosted the advertising growth.

While ad-supported tiers for subscription streaming services have gained media attention with the recent revelation that Netflix may enter the market, the completely ad-supported model like Pluto and the Roku Channel continue to gain users and improve monetization. Management noted 80% of Pluto viewers also pay for a streaming service. We view these channels as a secondary streaming source focusing on comfort programming as the services provide access to older but still popular library content and repackaged unscripted programming.

Neil Macker does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.