Chicago, IL – March 14, 2025 – Today, Zacks Equity Research discusses Pearson PSO, Paramount Global PARA and Reservoir Media RSVR.
Link: https://www.zacks.com/commentary/2429599/3-media-stocks-to-watch-from-a-challenging-industry
The Zacks Media Conglomerates has been grappling with waning broadcast television ratings and diminishing demand for home entertainment sales of theatrical content. Furthermore, advertisers' tepid spending amid rampant inflation and elevated interest rates pose a formidable concern for industry players. Conversely, industry players are reaping the benefits of consumer shift toward over-the-top (OTT) content.
Major players like Pearson, Paramount Global and Reservoir Media are aggressively investing in developing original music, shows and fresh content to captivate and retain Gen Z and millennial subscribers. Moreover, the industry's prospects are bolstered by the availability of cost-effective alternative packages, such as skinny bundles, designed to entice consumers with lower prices compared to traditional offerings.
The Zacks Media Conglomerates industry encompasses companies engaged in creating and distributing various content forms, from entertainment to educational materials. These firms also offer travel and consumer products. The industry is adapting to the shift toward OTT content, both subscription-based and ad-supported.
Advertising remains a key revenue source, while the metaverse presents new opportunities. Subscription price increases, driven by growing subscriber numbers, offer potential revenue growth. However, the industry faces challenges that include declining broadcast TV ratings, reduced demand for home entertainment versions of theatrical releases, and increasing cord-cutting trends. Despite these obstacles, media conglomerates continue to evolve, leveraging new technologies and consumer preferences to maintain their market position.
Original Content Driving Growth: Media companies' capacity to generate advertising revenues beyond traditional TV platforms, such as websites and other digitally consumed channels, unlocks increased opportunities for targeted advertising. The growing consumer preference for subscription services over linear pay-TV and rental or outright purchases has compelled industry players to adapt their business models. Media companies are innovating with original content to attract and retain subscribers.
High-Speed Internet Demand Acting as a Key Catalyst: The burgeoning demand for high-speed Internet, including broadband, has benefited media industry participants. Improving Internet speed has fueled the demand for high-quality videos and the trend of binge-watching. Furthermore, a strengthening broadband ecosystem in international markets, coupled with the proliferation of smart TVs, is expected to drive growth.
Cord-Cutting and Matured PayTV Industry Hurting Prospects: The media television industry is undergoing a rapid evolution of distribution platforms, embracing new players and advanced technologies. The declining profitability of residential video services due to rising programming costs and retransmission fees has made survival challenging for traditional companies. Additionally, the heightened demand for on-demand content has led to the mushrooming of streaming service providers, making it increasingly difficult for traditional media television companies to maintain their viewer base.
The Zacks Media Conglomerates industry is housed within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #179, which places it in the bottom 28% of more than 245 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates continued outperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry's position in the bottom 50% of the Zacks-ranked industries results from a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group's earnings growth potential. Since March 31, 2024, the industry's earnings estimates for 2025 have moved down 8.6%.
Despite the gloomy industry outlook, a few stocks are worth watching as these have the potential to outperform the market based on a strong earnings outlook. But before we present such stocks, it is worth first looking at the industry's shareholder returns and current valuation.
The Zacks Media Conglomerates industry has underperformed the broader Zacks Consumer Discretionary sector and the S&P 500 composite over the past year.
The industry has declined 6.2% in the above-mentioned period against the broader sector's growth of 2.2%. The S&P 500 has risen 8.9% during the same time frame.
On the basis of the trailing 12-month P/S, a commonly used multiple for valuing media companies, we see that the industry is currently trading at 1.43X compared with the S&P 500's 4.83X and the sector's 1.68X.
Over the past three years, the industry has traded as high as 2.94X and as low as 1.12X, with a median of 1.51X.
Pearson: This Zacks Rank #2 (Buy) company represents a compelling buy opportunity in 2025, driven by robust financial performance and strategic positioning in the evolving education market. The company delivered 3% underlying sales growth and 10% profit growth in 2024, with expanding margins reaching 16.9%. Pearson's AI integration across products is yielding tangible benefits, while strategic partnerships with AWS, Microsoft, and ServiceNow strengthen its Enterprise Learning segment. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
The company's focus on assessments and enterprise skills addresses the $1.1 trillion learning-to-earning transition gap. With strong free cash flow generation supporting shareholder returns (£350 million buyback announced) and a clear strategy for mid-single-digit growth with 40 basis points of annual margin improvement, Pearson offers both growth and value.
The Zacks Consensus Estimate for the company's 2025 earnings has moved north by 2.3% to 88 cents per share over the past 30 days. PSO shares have risen 2.9% year to date.
Paramount Global: This Zacks Rank #3 (Hold) company warrants investor attention in 2025 as the company navigates its transition to a streaming-first model. Fourth-quarter 2024 results showed promising developments. Paramount+ added 5.6 million subscribers (reaching 77.5 million total), drove 16% revenue growth, and ranked as the #2 domestic SVOD for hours watched across original series. Management expects Paramount+ to achieve domestic profitability in 2025.
However, challenges persist with accelerating affiliate revenue declines and linear TV headwinds. The pending Skydance transaction, expected to close in H1 2025, represents a pivotal evolution for the company. Investors should monitor streaming profitability progress against continued traditional media pressures.
The Zacks Consensus Estimate for the company's 2025 earnings has moved north by 7.2% to $1.64 per share over the past 30 days. PARA shares have gained 10.7% year to date.
Reservoir Media: This Zacks Rank #3 company continues building momentum on its solid fiscal 2024 performance, which delivered 18% revenue growth and 20% Adjusted EBITDA growth. The company's strategic catalog acquisitions across diverse genres and emerging markets, coupled with AI-enhanced content monetization capabilities, position it well within the growing music rights sector.
Management projects continued growth with fiscal 2025 guidance of $148-$152 million in revenues and $58-61 million in adjusted EBITDA. While facing challenges, including Spotify's bundling changes, RSVR's pipeline of potential acquisitions and strong financial foundation merit consideration for investors interested in music IP assets.
The Zacks Consensus Estimate for the company's 2025 earnings has remained steady at 11 cents per share over the past 30 days. RSVR shares have declined 17.2% year to date.
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