Paramount's Q1 Gains Fall Short of Stirring the Market; Skydance's Future Remains a Wild Card

Paramount Global’s Q1 2025 results delivered a mixed bag of progress and lingering challenges, leaving investors cautiously optimistic yet hesitant to rally behind the stock. While the company reported strong growth in its streaming division and narrowed losses for Paramount+, broader concerns around the Skydance Media merger, regulatory hurdles, and softness in traditional TV advertising kept the market on the sidelines.

Streaming Momentum vs. Legacy Headwinds

The quarter’s standout performance came from Paramount+, which added 1.5 million global subscribers (total: 79 million) and saw watch time per user rise 17% year-over-year. Series like Yellowstone, Mobland, and Yellowjackets drove engagement, while Sonic the Hedgehog 3 and Gladiator 2 fueled streaming acquisition spikes. The D2C segment’s revenue grew 9% to $2.0 billion, with OIBDA narrowing by $177 million to a loss of $109 million—a clear step toward the 2025 domestic profitability target Paramount has emphasized.

However, traditional divisions faltered. TV Media revenue dropped 13% to $4.5 billion, hit by declining affiliate fees and the absence of Super Bowl ad revenue. Even CBS’s dominance as the most-watched broadcast network for the 17th consecutive season couldn’t offset 21% ad revenue declines in linear TV. Pluto TV, despite record viewing hours, struggled with ad oversupply, dragging down its monetization.

The Skydance Wild Card

The $8 billion merger with Skydance Media remains Paramount’s most critical—and contentious—catalyst. While the deal is still expected to close in H1 2025, regulatory and legal risks loom large. The FCC’s ongoing review of Paramount’s broadcast licenses has been slowed by Trump’s $20 billion lawsuit over a 2023 60 Minutes segment, which FCC Chair Brendan Carr has linked to the merger’s approval.

Adding to the uncertainty: the Zacks Rank #5 (Strong Sell) rating for Paramount, citing macroeconomic risks and sector-wide headwinds. The merger’s success hinges on whether regulators will prioritize editorial independence over political pressures—a question with no clear answer.

Financials and Free Cash Flow

Paramount’s Q1 net profit jumped to $152 million (vs. a $554 million loss in Q1 2024), driven by reduced write-downs and cost cuts. Free cash flow hit $123 million, though this included $108 million in restructuring payments. Management forecasts Q2 free cash flow to align with 2024 levels, excluding one-time costs—a cautious signal given the planned marketing spend for Mission: Impossible – The Final Reckoning, which may temporarily depress OIBDA.

Investor Takeaways and Risks

1. Streaming Progress: Paramount+’s subscriber growth and content hits validate its strategy, but domestic profitability remains a make-or-break milestone.
2. Skydance’s Uncertainty: The merger’s $3.33 arbitrage spread per share reflects investor skepticism about regulatory clearance. A delay beyond H1 2025 could trigger further valuation pressure.
3. Legacy Declines: TV Media’s 13% revenue drop underscores the fragility of linear TV. CBS’s ad revenue reliance on sports (e.g., NCAA, Masters) is unsustainable long-term.
4. Competitive Landscape: While Paramount+ ranks second to Netflix in top SVOD originals, it faces pricing pressure and subscriber saturation in saturated markets.

Conclusion: A Stock Stuck in Neutral

Paramount’s Q1 results highlight its potential to thrive in streaming while grappling with declining traditional media relevance. Yet, until the Skydance merger clears regulatory hurdles and Paramount+ achieves sustained profitability, the stock is unlikely to inspire investor confidence.

Key data points underscore the dilemma:
- Paramount+’s 79 million subscribers put it on par with HBO Max but lag behind Disney+’s 240 million.
- D2C’s 9% revenue growth contrasts with Netflix’s 7% rise, suggesting parity but no breakout momentum.
- The $28 billion valuation of the merged entity depends entirely on FCC approval—a political minefield.

For now, investors are right to remain skeptical. Until Paramount proves it can navigate the Skydance quagmire and monetize its streaming growth without relying on blockbuster films, the stock will remain a wait-and-see story—not a buy signal.

The path forward is clear: execute on streaming profitability, resolve the Skydance impasse, and pivot CBS away from ad-dependent linear TV. Until then, the market will stay unmoved.