Paramount+ Draws Mixed Wall Street Outlook After Big Investor Day

Paramount Studios
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One analyst lauds a "robust content slate, differentiated live strategy." Another says: "Sell Netflix to buy ViacomCBS." A third: "We still need to work on updating our projections." And one writes: "We don't understand Showtime's reason to exist."

Wall Street analysts on Thursday started sharing their takeaways from ViacomCBS' streaming investor day late Wednesday, which provided more insight into its upcoming Paramount+ service and broader digital strategy.

The stock was up in early trading after hitting a new 52-week high after several analysts raised their stock price targets for the company whose shares have risen sharply this year, while others said they weren't fully convinced by the presentation.

The service, launching March 4, will cost $5 a month with ads and $10 without ads, and boast 30,000 TV episodes, live sports and a library of 2,500 movies. The platform leans on the Paramount Pictures, CBS, Comedy Central, MTV, BET, Nickelodeon and Smithsonian Channel brands for much of its content, and will feature MGM movies as part of its deal with premium network Epix. However, ViacomCBS' Showtime brand will exist as a standalone streaming and linear channel.

Guggenheim Securities analyst Michael Morris, who has a "buy" rating on ViacomCBS, boosted his price target by $24 and used this title for his report: "Seeking New Streaming Heights with Robust Content Slate, Differentiated Live Strategy."

Noting that ViacomCBS, led by CEO Bob Bakish, is targeting 65 million-75 million global streaming subscribers and $7 billion in streaming revenue by 2024, compared with 30 million and $2.5 billion in 2020, he argued: "We see the company as well positioned among peers, with a $15 billion total content budget target, $5 billion of which will be allocated specifically to the differentiated sports/news/entertainment streaming service."

Morris said his updated $74 stock price target reflects the firm's "relative positioning in the evolving media industry."

But the analyst acknowledged that key investor debates "will likely focus on [the] potential to achieve targets, an implied break-even streaming product by 2024 (not dissimilar from peer targets, but with ultimate profit potential further in the future) and incremental risk to legacy economics."

Meanwhile, Needham & Co. analyst Laura Martin maintained her "buy" rating and raised her stock price target by $25 to $80, urging investors to "sell Netflix to buy ViacomCBS." She wrote: "We calculate that ViacomCBS' streaming assets are worth more than ViacomCBS' total market cap today." And she said she saw, during Wednesday's investor event, "data points that suggest ViacomCBS will report faster streaming growth (and more valuation upside) than Netflix over the next three years."

MoffettNathanson's Michael Nathanson, in a report entitled "Mission Impossible?," said he will need more evidence that the streaming strategy will work. "While we believe ViacomCBS has enough unique content (scripted and sports) to keep growing Paramount+ in the U.S. and benefit from the secular shift in advertising moving to AVOD with Pluto, we are still cautious on the impact of Showtime OTT growth on linear Showtime, as well as the expected continued core linear network declines for its remaining portfolio," he explained.

"We think ViacomCBS’ shift to streaming is necessary given the headwinds the company faces on the traditional business," the analyst continued. "We previously did not forecast that streaming would become big enough to return ViacomCBS on a path to growth within the next five years. However, we still need to work on updating our projections, including factoring in the company’s updated disclosure, as well as digesting all of these new moving pieces in our model. So far, it isn’t clear to us that any of the new takeaways from the streaming event will change our opinion."

J.P. Morgan Alexia Quadrani, who has no rating on the stock, echoed that sentiment. "We believe Paramount+ remains a real contender in the streaming wars, but it is still to be determined if it becomes a winner," she wrote in a report. "Near-term, we wouldn’t be surprised to see the stock continue to be rewarded for its aggressive spending plans into a defined streaming strategy, although our enthusiasm is somewhat tempered by an already meaningful move ahead of this investor event."

And Bernstein analyst Todd Juenger, who rates the stock at "underperform," remains outright bearish on ViacomCBS. "The Paramount+ consumer proposition is weak," he wrote in a report entitled "Streaming event takeaways – it's a long fall down that mountain."

Jeunger explained: "Sports offering is too narrow to satisfy sports fans. News belongs on the internet. ... General entertainment is non-differentiated, late and lacks the global scale of competitive offerings. Post-pandemic, we expect a shakeout among streaming services at the consumer level. We'll take the 'under' on the Paramount+ (and Showtime) guidance."

And Juenger wrote: "We don't understand Showtime's reason to exist. In a blind taste-test, if you asked a listener which service was the 'premium' one, we think the answer would be Paramount+. It has the live sports and all the brands. Showtime's OTT sub growth has come fully at the expense of linear decline. Internationally, Showtime will be rolled into Paramount+."