Analyst: Free cash flow an issue at Paramount
February 20, 2023
A post-results report from analysts at MoffettNathanson (MN) admitted that 2022 was a “challenging year” for Paramount. MN praised SVoD service Paramount+ and its 56 million subscribers (up 9.9 million), but suggested that investors should be focused on free cash flow (FCF) as the true measure of a business.
The problem is that last year’s FCF was just $500 million at year-end. This current year is going to be even worse, although Paramount believes it will return to positive FCF in 2024.
“Free cash flow in 2022 was pressured by a total company EBITDA decline of -26 per cent and we now expect a similar decline in 2023 (-24 per cent estimate). Management remains focused on driving a return to growth in 2024, but it is hard to see how quickly the company can return to even 2022 levels ($3.3 billion), which was down over -$1 billion from 2021 ($4.4 billion),” said MN.
“The main driver of negative free cash flow and pressure on total company EBITDA has been the pivot to Paramount+. While subscriber growth has been better than expected, it has clearly come at a significant cost to the company’s overall financial picture. DTC losses in 2022 reached -$1.8 billion, and we continue to project peak losses of -$2.1 billion in 2023. Although DTC losses should improve in 2024, the scale of the improvement is vague (we maintain our -$1.5 billion estimate),” suggested MN.
The analysts say that combining Showtime with Paramount+ will help.
“While the company expects $700 million in savings, the benefits of which will largely be realised in 2024 and beyond, we question how much is true cash savings vs future programming and other costs avoidance of limited bottom line impact,” added MN.