A quick essay on Berkshire Hathaway’s disclosure of a $2.6B investment in Paramount Global for 11% of the company.
There is speculation is that the investment is a bet on Paramount getting acquired. But, we have no idea whether that’s true. If we look at Paramount through a superficial financial lens, it is undervalued for a company with a rocket ship like Pluto TV (a price-to-earnings ratio of 5.31). Its cash to market capitalization ratio of 29.45% - which measures the liquidity and financial stability of a company - suggests it is financially stable despite ongoing investor skepticism. It’s reducing its debt, its two major streaming services are both growing, and its ad sales team has one of the best relationships with advertisers in the linear marketplace.
But, we’ve also just emerged from a week of upfronts where advertisers showed up “armed with data about their most likely customer, they are telling media outlets to run their commercials based on so-called “programmatic” technology that will insert the ad during a particular household’s streaming session or FAST watch, all according to the type of customer they need to entice.”
Paramount is well-positioned to deliver those types of outcomes, in part because of the ad-targeting platform it acquired with Pluto. But, when faced with a choice between Paramount or Roku, Google or Amazon, the last three offer more data across the consumer conversion funnel and more reach at a time when advertisers value that data increasingly, and at a time when networks seem to have limited solutions to answer that demand.
The PARQOR lens reveals two other perspectives on the news.
First, as I detailed in Streamers Hit a Dead-End (Macro) & Consumers Hit Dead-Ends In Streaming (Micro), Paramount+ scores 3.5 out of 5 BEADS attributes.
To remind you, The PARQOR Hypothesis argues that the media businesses most likely to succeed in streaming and beyond must meet five ...