Paramount’s DTC Subscriber Growth Shines in Q2

Paramount (PARA) reported a strong second quarter as revenue and adjusted EBITDA both came in ahead of FactSet consensus. Despite worries about the streaming ecosystem, Paramount+ and the other direct-to-consumer, or DTC, platforms posted strong growth after accounting for the shutdown of operations in Russia. While the international rollout of Paramount+ has attracted more subscribers and driven top-line growth, these efforts have predictably widened the losses at the DTC segment. We still expect revenue growth over the near term to be driven mostly by the expansion of the firm’s DTC segment, which will continue to burn cash. We keep our $58 fair value estimate.

Revenue jumped 19% during the quarter with contributions from all three segments. DTC revenue expanded 56% to $1.2 billion, with subscription revenue up 74% to $830 million and ad revenue improving by 25% to $363 million. Paramount+ and Pluto both generated strong subscriber growth, with 4.9 million net subscriber additions (less the loss of 1.2 million Russian customers) and a 2.1 million increase in monthly active users, respectively. The growth at Paramount+ was notable given the ongoing losses at Netflix in 2022. Paramount+ benefited from the UEFA Champions League along with the strong scripted slate including 1883, Halo, The Lost City, and Star Trek: Strange New Worlds. The international rollout of Paramount+ has also helped with launches in the U.K., Ireland, and South Korea. Paramount+ now has over 43 million subscribers and combined DTC subscribers across platforms rose to almost 64 million despite the loss of 3.9 million Russian customers.

Adjusted EBITDA loss at the DTC segment widened to $445 million versus $143 million a year ago. On a trailing 12-month basis, the segment generated adjusted EBITDA losses of $1.6 billion. Management still expects peak losses in 2023 with improvement in 2024. Even with the DTC losses, Paramount has still produced $3.5 billion in adjusted EBITDA over the last 12 months.