What does Warren Buffett see in Paramount Global? – The Average Joe


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    What does Warren Buffett see in Paramount Global?


    May 24, 2022

    Every media giant’s playbook: grow through mergers and acquisitions (M&A), expand the content library and launch a streaming service.

    2022 is proving to be a poor time to enter the industry — with the death of CNN+ and the implosion of Netflix’s stock. Despite the risks, the industry has caught the attention of one well-known investor.

    What does Mr. Buffett see in Paramount?

    Last week, filings revealed that Warren Buffett’s Berkshire Hathaway took a $2.6B stake in media giant Paramount Global (NASDAQ:PARA) — becoming Berkshire’s 18th largest holding at the end of the first quarter.

    Does the famed value investor see Paramount as a value play, or is there something the rest of us don’t see? Either way, thanks to Buffett’s position, Paramount is up 5.4% in 2022, while Netflix and Disney are down 34% and 70%, respectively.

    • In February, media giant ViacomCBS rebranded to Paramount Global — putting a greater focus on streaming.
    • Paramount assets include Showtime, Nickelodeon, MTV and Comedy Central — but it has been selling many of its legacy holdings.

    Last year, Paramount set a goal for 65-75M streaming subscribers by 2024. Fast forward one year, and Paramount expects to hit that target by the end of 2022 — and raised its 2024 target to 100M.

    Investors are tired of the same script

    Higher growth comes with a cost — primarily, content production costs. The company expects to raise its spending on streaming content from $2.2B in 2021 to $6B in 2024.

    Analysts — already cautious with streaming platforms — have mixed feelings about Paramount. They’re worried about rising content costs impacting profitability and competition from better-financed companies with stronger IP.

    But there might be another reason for Buffett’s purchase — a potential acquisition play. For the past decade, the media industry has been consolidating with massive deals — and in recent years, activity has picked up again.

    • In April, WarnerMedia and Discovery completed their merger — forming Warner Bros. Discovery (NASDAQ:WBD).
    • Amazon completed its acquisition of film and TV studio MGM in March.

    Investors: Open for business

    After a decade of consolidation, Paramount is one of the few strong acquisition candidates remaining.

    • Earlier this year, Paramount’s CEO hinted at being open to an acquisition, and one possible acquirer is Warner Bros. Discovery.
    • Per Bloomberg Intelligence Analyst Geetha Ranganathan (BBG), Paramount is attractive to acquirers due to its “digestible size.”

    Media giants have different answers to subscription fatigue — Paramount wants to plow billions more into content, Disney plans to show ads and Netflix’s answer is K-dramas.

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