What happened
Week to date, shares of Paramount Global (NASDAQ: PARA) (NASDAQ: PARA.A) were down 6.8% as of Friday afternoon, according to data provided by S&P Global Market Intelligence. The stock dropped following management's warning that advertising revenue was coming in below third-quarter numbers.
So what
Paramount grew advertising revenue by 1% in the third quarter on a constant-currency basis. Management expected advertising in the fourth quarter to be in line with the third quarter, but ad spending still appears to be slowing as the economy weakens.
Remember that it's normal for the advertising business to experience a decline during times like these. Ad spending will recover again when the economy is more stable. In the meantime, this cyclical swing is a once-in-a-decade buying opportunity for investors that have a longer time horizon than market traders.
Now what
When the economy improves, Paramount will certainly benefit. It has a wealth of content from its century-deep content library from its iconic film studio. It also owns the leading broadcast network with CBS and growing streaming services with Pluto TV and Paramount+. The company has a combined 67 million subscribers in the direct-to-consumer business, which nearly doubled revenue year over year in the third quarter.
A weak economy is a great opportunity to buy top media stocks on the cheap. Compared with industry giants like Netflix, Paramount stock is a real bargain. The shares trade at a forward price-to-earnings ratio of less than 10 versus more than 30 times earnings for Netflix.
Paramount's top brands and low valuation have attracted Warren Buffett's Berkshire Hathaway to buy shares this year. If you're looking for an undervalued entertainment stock, Paramount might be the one to bet on.
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John Ballard has positions in Netflix. The Motley Fool has positions in and recommends Berkshire Hathaway and Netflix. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway, short January 2023 $200 puts on Berkshire Hathaway, and short January 2023 $265 calls on Berkshire Hathaway. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
