Amid another soft session on Wall Street Thursday, Paramount Global (US:PARA) incurred the brunt of the volatility, with PARA stock cratering to the tune of over 28% against the prior session. Primarily, Paramount delivered disappointing results with its first quarter of 2023 earnings report, casting a dark cloud over the Hollywood machinery already beset by a writer’s strike.

In particular, investors question the viability of streaming businesses.

On the top line, the mass-media conglomerate posted revenue of just under $7.27 billion. This tally compared unfavorably to the year-ago quarter’s haul of $7.33 billion. Moreover, analysts anticipated that sales would come in at an average $7.42 billion, per a Reuters report, which cited Refinitiv IBES data.

In addition, operating loss sat at $1.23 billion in Q1, well off the operating income of $775 million posted one year ago. Also, the owner of CBS, Nickelodeon and the Paramount movie studio earned 9 cents per share on an adjusted basis, which came in well off the Street’s consensus estimate of 17 cents.

The company also took a $1.67 billion charge in connecting with the restructuring of Showtime, which is being combined with the Paramount+ streaming service.

Looking at the magnitude of yesterday’s drop, the award for understatement of the day goes to Goldman Sachs, whose analysts wrote: “While we are encouraged by the continued momentum with Paramount+ subs, we expect a negative initial reaction in the stock owing to the miss to consolidated financials and unexpected reduction in the dividend.”

“Negative initial reaction,” indeed. The firm has a ‘sell’ rating on PARA stock, with a $12 per share price target.

Cash is King

In a call with investors, Paramount CEO Bob Bakish stated that the company is “navigating a challenging and uncertain macroeconomic environment, and you see the impact of that on our financials, as the combination of peak streaming investment intersects with cyclical ad softness.”

Pouring salt on open wounds, management declared that it will cut its dividend to 5 cents per share. As a result, the company estimates that it will benefit from approximately $500 million in annualized cash savings.

“Ultimately, cash remains king and the need to preserve as much as possible given the fundamental challenges facing Paramount led to the dividend cut to save $500 million a year,” MoffettNathanson analyst Robert Fishman pointed out in a note to clients.

Reuters stated that “[s]everal factors, including higher prices, lower consumer demand across products and services, and weak markets have forced companies to reduce advertising spending.” Unfortunately, this dynamic may bring challenges for companies pivoting aggressively to the streaming business model. Notably, Walt Disney (US:DIS) suffered a decline of 3.4% on Thursday.

Writers Walk

Imposing challenges to an already-troubled ecosystem is the ongoing Hollywood writers’ strike. Historically, Slate pointed out, writers earned cuts from materials they produced which aired on broadcast television. However, streaming shows rarely offer significant “residuals” irrespective of viewership statistics, forcing several writers into financial hardship; hence, one of the contributing factors of the strike.

“We’re well positioned to navigate that,” Bakish said on the call, adding that as far as the financial impact goes, “it really ultimately depends on duration of strike,” Variety reported.

For now, viewers shouldn’t notice much change in their programming as companies like Paramount command a library of content and non-scripted programs at their disposal. However, if the strike remains unaddressed, the conflict could cut into programs and films for next year.

Worryingly, Reuters mentioned that revenue from Paramount’s filmed entertainment business fell 6%. Therefore, it may be in management’s best interest to see the writers’ strike end as soon as possible. By the numbers, Paramount has some catching up to do.

This article originally appeared on Fintel

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