Paramount Global and Warner Bros. Discovery Inc. witnessed a decline in their stock prices on Friday following a downgrade by Wolfe Research. The downgrade was prompted by growing concerns over a potential decrease in advertising spending, which poses a risk to TV advertising revenue.
Wolfe Research analyst Peter Supino highlighted the significant impact that declining ad spending can have on profitability, considering that advertising revenue is predominantly pure profit. In a note to clients, Supino expressed his view that upfront spending by advertisers, which occurs before the new TV season begins, will fall short of expectations. He further noted the possibility of pricing rollbacks, a development not seen in over a decade, excluding the effects of the COVID-19 pandemic.
In light of these concerns, Supino downgraded Paramount to an underperform rating from peer perform, and lowered the rating of Warner Bros. to peer perform from outperform. He stated increasing worry that the decline phase is intensifying for both companies.
As a result, shares of Paramount and Warner Bros. experienced a 0.5% decline in morning trading, contrasting the gains observed in their peer group. In comparison, the Communication Select Sector SPDR exchange-traded fund rose 0.2%.
Supino also mentioned that the upfront season has started slowly, lagging behind previous years by approximately one month. Networks are seeking near-record pricing with more than a 15% increase from the previous year to offset ratings declines, while ad buyers are pushing for lower pricing.
Over the past three months, Paramount’s stock has dropped by 24.3% and Warner Bros.’s shares have fallen by 16.6%. In contrast, the communication ETF has shown a rally of 11.0%, and the S&P 500 index has gained 7.5%.
