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Paramount Q2 Earnings: ‘Top Gun: Maverick’ in Dogfight with Streaming Costs

"Top Gun: Maverick" grossed $1 billion before the end of Q2; Paramount's streaming expenses were more than $1.6 billion in the quarter.

Tom Cruise plays Capt. Pete "Maverick" Mitchell in Top Gun: Maverick from Paramount Pictures, Skydance and Jerry Bruckheimer Films.

“Top Gun: Maverick”

Paramount Pictures

Updated August 4 at 4:08 p.m. ET: Wells Fargo analysts have updated their price target for Paramount Global stock (PARA) from $60 per share to $40. Shares closed Thursday at $25.31.

Paramount Global had a pretty successful June quarter, thanks in large part to “Top Gun: Maverick” and continued streaming growth. Unfortunately, it costs money to build out a major streaming business, and Paramount is feeling that (as well as, yes, the need, the need for speed).

The company’s overall global DTC (direct-to-consumer) subscriber tally rose to 63.7 million; Paramount executives have previously stated a streaming goal of 100 million streaming subscribers for 2024. Paramount+ added 4.9 million subscribers (excluding the removal of 1.2 million Russia subs) in the second quarter of 2022, topping 43 million subs on its own. FAST (free ad-supported streaming television) platform Pluto TV’s monthly active users (MAUs) increased to nearly 70 million.

Paramount+, an SVOD- (subscriber video on-demand) and AVOD- (ad-supported video on-demand) hybrid service, saw revenue rise a highly impressive 120 percent in the quarter. The combination of ad sales and subscription revenue across the company’s overall DTC platform was up 56 percent in the quarter to $1.2 billion — but expenses soared 80 percent to $1.6 billion. (Streaming costs were even higher in the March quarter, but so was the revenue.)

It’s a good thing “Top Gun: Maverick” has made $1.3 billion at the global box office to-date, which of course includes more than a month now outside of Q2 that will be recognized in Q3. (The filmed grossed $1 billion by June 26, one day shy of a month in theaters.) Thanks to the phenomenon of the phenomenal “Top Gun” sequel, Paramount Pictures’ filmed entertainment revenue jumped 126 percent in the second quarter to nearly $1.4 billion. “Sonic the Hedgehog 2” also chipped in.

All-told, Paramount Global revenue rose 19 percent from the comparable quarter last year; the company said on Thursday it had $4 billion of cash on hand. Unfortunately, Paramount Global’s operating income and adjusted earnings per share decreased by about one-third from the comparable second quarter of 2021.

Still, the former ViacomCBS topped Wall Street’s consensus revenue forecast and earnings per share (EPS) were within a penny — or a few — in either direction of estimates, which gave the stock a (relatively small) shot of adrenaline in early Thursday trading. Wells Fargo analysts see Paramount stock, which is currently trading around $25 per share, to have a true value of $60.

Paramount Global now has a market cap of $16.38 billion. Its enterprise value, which includes cash and debt, is probably pushing $29 billion. Why do we bring that up? Well, in a quick turnaround analysis from the Q2 results, the media analysts at Wells Fargo called Paramount “one of the better potential takeout candidates in Media given its studio size, library, and streaming positioning.” Here, “takeout” means “acquisition.”

One fantasy-M&A scenario that is at least fun to ruminate on is the notion of Comcast buying Paramount Global, which could combine movie studios Universal and Paramount, streaming services Peacock and Paramount+, and the cable television portfolios of NBCUniversal and the Viacom channels. The (main) problem posed by this semi-popular theory is the pairing of broadcast networks CBS and NBC, which would be a no-no under FCC (Federal Communications Commission) rules.

To help out Peacock, they can work around that.

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