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What Does Warren Buffett See in Paramount?

What Does Warren Buffett See Paramount?
Illustration: VIP+: AP Photo

Warren Buffett is one of the most, if not the most, legendary names in investing. When he buys, people listen. 

So that’s why when a SEC filing revealed last week that Buffett took a $2.6 billion stake in Paramount Global during Q1, many raised their eyebrows as the stock shot up 15% intraday. Buffett is now the biggest outside investor in Paramount and owns about an 11% stake, or 69 million nonvoting shares.  

Though Paramount is building out its streaming business, it is still very much a legacy media company. The majority of its revenue (85% to be exact in Q1) came from TV, movie theaters, and licensing.  

Buffett is a notorious value investor and typically prefers to snatch up shares of companies with strong fundamentals and earnings power. The Oracle of Omaha clearly sees value in Paramount’s traditional media business model.  

Nevertheless, aside from the optics and the boost to sentiment around Paramount stock, it doesn’t really mean much else. 

Buffett’s investment disclosure comes a little over two weeks after Paramount reported first-quarter financial results that failed to impress investors. Q1 marked exactly one year since the launch of the company’s streaming service Paramount+. The headline growth for the company’s streaming service wasn’t bad last quarter, and continued growth appeared to be on track.   

Paramount+ added 6.8 million subscribers during Q1, which brought the service’s total global subscriber figure to 39.6 million. Paramount had 62.4 million global subscribers across all its direct-to-consumer offerings. 

Though it is important to remember Paramount began a big promotion with telecom giant T-Mobile in early November, which gave T-Mobile and Sprint’s eligible customers 12 months of Paramount+ Essential for free. It is unclear how many of the 6.8 million sub additions in Q1 were from the running promo. 

In addition to its more recent streaming endeavors, Paramount is made up of two free cash flow generating legacy TV companies, Viacom and CBS. As of Mar. 31, Paramount had a very solid $5.3 billion of cash on its balance sheet. With the company’s approximate current market cap of $21 billion, its free cash flow yield sits at around 3.4%.  

Paramount and its streaming venture are very much in expansion mode, and it’s going to need that cash reserve to sustain the spending it will have to do to sustain high levels of growth for Paramount+. There’s a long road ahead for Paramount as it looks to establish itself in the next era for the media industry.  

Even as respected as Buffett is, he doesn’t always win. Buffett has also had really bad calls in the past, and no one knows how his investment in Paramount will play out. But at least it’s lifting\ sentiment at a time when most investors need a pick-me-up amid a broader market decline.