Is Paramount Global's Q2 Earnings Beat a Buying Opportunity Before the Skydance Transaction?

Paramount Global's Q2 2025 earnings report delivered a mixed bag for investors: a 31.43% beat on earnings per share (EPS) of $0.46 versus expectations of $0.35, but a 0.29% revenue miss at $6.85 billion. While the stock initially tanked 9.77% post-earnings, the broader narrative of Paramount's streaming-led transformation and the looming Skydance merger has sparked debate about whether this is a buying opportunity. To evaluate this, we must dissect Paramount's streaming growth, operational discipline, and strategic positioning ahead of its August 7, 2025, merger with Skydance.

Streaming Growth: A Content-Driven Turnaround

Paramount's Direct-to-Consumer (DTC) segment, anchored by Paramount+, posted a 15% year-over-year revenue increase to $2.2 billion, driven by a 23% surge in Paramount+ revenue. The platform added 10 million subscribers in Q2, pushing its total to 77.7 million, despite a 1.3 million subscriber dip from Q1 due to the expiration of an international distribution agreement. This volatility underscores the challenges of scaling a global streaming service but also highlights Paramount's ability to attract users with high-quality content.

Key hits like Landmen, Yellowjackets, and Mobland have cemented Paramount+ as a top-four global streaming service, while upcoming additions like South Park (U.S.) and Taylor Sheridan's new series promise further momentum. Watch time per subscriber rose 11% year-over-year, and churn improved by 70 basis points, signaling stronger user retention. Meanwhile, average revenue per user (ARPU) grew 9% YoY, demonstrating monetization progress.

The DTC segment's adjusted OIBDA (Operating Income Before Depreciation and Amortization) surged sixfold to $157 million, a critical metric for investors assessing profitability. This contrasts sharply with the traditional TV media segment, which saw a 6% revenue decline to $4.01 billion, as linear TV's erosion continued. Paramount's streaming-first strategy is clearly paying off, but the question remains: Can it sustain this momentum against entrenched rivals like Netflix and Disney+?

Operational Turnaround: Cost Discipline and Strategic Focus

Paramount has made significant strides in streamlining operations. Over the past four quarters, the company achieved $800 million in annualized non-content expense savings, a testament to its leaner cost structure. This discipline has been critical in offsetting the declining TV segment and funding its streaming push.

The company's liquidity remains robust, with a current ratio of 1.29 and $159 million in net operating cash flow for Q2. Paramount has also maintained its dividend for 20 consecutive years, a rarity in the volatile streaming sector. These metrics suggest a company that is both fiscally responsible and capable of reinvesting in growth.

However, challenges persist. The digital advertising market's oversupply has pressured DTC ad revenue, and the TV segment's affiliate revenue fell 7% YoY. Paramount's ability to navigate these headwinds will depend on its content pipeline and cross-platform monetization strategies.

Strategic Positioning: The Skydance Merger as a Catalyst

The impending Skydance merger, set to create a $25 billion entertainment entity trading as PSKY, is the most pivotal factor in Paramount's near-term outlook. Shari Redstone, the non-executive chair, has emphasized that the company is being handed over in a “healthy state,” with a strong foundation for long-term growth. Skydance's creative pedigree (e.g., Top Gun: Maverick, Mission: Impossible) and technological expertise could accelerate Paramount's streaming ambitions.

The merger also marks the end of the Redstone family's 70-year ownership, signaling a clean break from legacy challenges. With David Ellison of Skydance at the helm, the combined entity is expected to prioritize high-margin, content-driven growth. The new PSKY could leverage Skydance's premium production capabilities and Paramount's distribution network to compete more effectively with Netflix and Apple TV+.

Risks and Market Sentiment

Despite the positives, risks loom. The Q2 subscriber dip, albeit temporary, highlights the fragility of streaming growth. Additionally, macroeconomic pressures—such as inflation and consumer spending shifts—could dampen ARPU gains. The lack of full-year guidance from Paramount due to the merger adds uncertainty, as does the stock's recent 9.77% post-earnings drop.

Analysts remain split. While some argue that the stock is undervalued at $12 (post-earnings) and cite a price target range of $8.50–$20, others caution that the market is pricing in a “new normal” for streaming valuations. The stock's beta of 1.21 suggests it's more volatile than the S&P 500, making it a higher-risk play.

Investment Thesis: A Calculated Bet

For investors with a medium-term horizon, Paramount's Q2 results and merger timeline present a compelling case. The streaming segment's profitability, content-driven growth, and operational discipline justify a closer look. The Skydance merger could unlock synergies that transform PSKY into a leaner, more innovative competitor.

However, the stock's post-earnings drop and broader market skepticism suggest caution. A dip below $10 might offer a more attractive entry point, especially if Paramount can demonstrate sustained subscriber and ARPU growth in Q3. Investors should also monitor the combined entity's integration progress and content slate post-merger.

Conclusion

Paramount's Q2 earnings beat is a testament to its streaming turnaround, but the real test lies ahead. The Skydance merger represents both a risk and an opportunity—a chance to redefine the company's trajectory in a crowded market. For those willing to stomach short-term volatility, the combination of a strong DTC segment, cost discipline, and strategic clarity may justify a cautious long position. Yet, without a clearer path to profitability from its traditional TV business and amid macroeconomic headwinds, this remains a calculated bet rather than a slam dunk.