Paramount Global’s (NASDAQ:PARA) credit rating faces scrutiny as S&P takes a cautious stance, citing challenges stemming from the media conglomerate’s struggle to generate sufficient operating cash flow amidst the evolving landscape of cable television decline and intensifying competition in the streaming arena.
Currently holding an ‘BBB+’ investment grade rating on Paramount Global, S&P’s decision comes against the backdrop of the company witnessing a considerable decline in stock value, shedding approximately a fifth of its worth this year. Contributing factors include sluggish revenue growth and a substantial debt burden, standing at $15.63 billion as of September, surpassing its total assets.
S&P expressed concerns over the anticipated weakening of free operating cash flow (FOCF), attributing it to the dwindling cash inflows from linear TV operations due to ongoing declines in pay-TV subscribers and a shift in advertising expenditure towards streaming platforms. Paramount Global’s shares experienced a 5% dip following Warner Bros Discovery’s announcement of a larger-than-expected quarterly loss, driven by a soft advertising market and repercussions of Hollywood labor disputes.
Highlighting Paramount’s comparatively steeper cash flow declines relative to competitors, S&P emphasized factors such as its smaller scale, limited business diversification, and slower progression in direct-to-consumer (DTC) ventures. The agency projected reduced cash flow from the streaming segment due to escalated content expenditures, technology investments, and amplified marketing and subscriber acquisition expenses.
Despite significant investments directed towards Paramount Plus, the streaming arm of the company, Paramount Global declared in November that investments in the subsidiary had reached their peak a year ahead of schedule. This move signifies an attempt to navigate the complexities of the streaming landscape while striving for profitability amidst mounting competition.
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