Legacy Paramount tops profit forecast amid $79 billion Skydance debt

By Amara Osei

According to Business Insider, Skydance shares fell 2% in after-hours trading after initially jumping more than 4%, even as legacy Paramount reached its revenue goal and topped profit projections. The figures covered legacy Paramount, while the broader report outlined the combined company’s strategy.

CEO David Ellison and co-CEO Ynon Kreiz sent employees a post-earnings memo after the Paramount business reported third-quarter results. It was the first earnings report since last month’s Paramount-Warner Bros. Discovery mega-deal, and Business Insider obtained the memo.

What did Skydance tell employees?

“The progress we've made is a direct result of your contributions,” Ellison and Kreiz wrote. They said leadership teams were already in place across Skydance Studios, Direct-to-Consumer and TV, with the organizational structure set and integration “well on our way.” The memo said five weeks had passed since the transaction closed and the combined company launched.

The CEOs reiterated three goals:

• Establishing Skydance as the premier global content engine and the home of the world's leading storytellers
• Accelerating our integrated direct-to-consumer platform
• Optimizing our highly profitable linear TV portfolio, anchored by CBS.

Ellison and Kreiz expressed confidence that the new company had the size and library to compete with Netflix and Google’s YouTube. Business Insider listed the Warner Bros. studio, Paramount Pictures, HBO, CBS, CNN, Paramount+, HBO Max, Pluto TV, TNT, HGTV and Comedy Central among its assets.

“We will lead in a crowded market by using our scale, assets and global reach to drive transformation and growth,” Ellison and Kreiz wrote. They said Skydance would use its creative capabilities, talent relationships, production prowess and expansive library of iconic IP to win in storytelling.

The executives said Skydance would build the most technologically capable media company, with a unified technology platform spanning streaming, live and linear. They said that platform would improve user experience and drive efficiencies.

The CEOs also said Skydance would earn trust by communicating directly and transparently. They said the company would back up its words with action and follow through on commitments to the people it serves and works alongside.

Why did shares retreat despite the earnings beat?

Business Insider reported that the stock had whipsawed in recent weeks, rising more than 8.5% on Monday after previously falling more than 11% from pre-merger levels.

Business Insider put Skydance’s debt load at roughly $79 billion and said the company’s success hinges on its ability to pay it down. Forrester media analyst Mike Proulix said: “The newly merged Skydance comes with massive debt that remains at the center of concern over the company's ability to profitably grow.”

Skydance has said it expects at least $6 billion in annual savings and efficiencies from bringing the two companies together. It has also said most of those savings will not come from layoffs.

Business Insider reported that employees were anxious about cuts and internal competition as the Paramount and Warner Bros. Discovery teams combine. In late October, Skydance told employees to return to the office five days a week or take a buyout offer, according to Business Insider.

Ellison and Kreiz said they were “already seeing real results” toward the $6 billion savings pledge. “We know there is still a lot of work ahead to position this company for long-term success,” they wrote. They credited employees for embracing the pace of change with “extraordinary determination and enthusiasm.”

The executives directed staff to the shareholder letter for quarterly details and said an earnings-call replay would appear soon on the investor relations site. The memo thanked employees for their commitment and closed: “Keep up the great work!”

For investors, the next test is whether Skydance can convert at least $6 billion in annual savings into debt reduction while completing the integration and easing employee uncertainty. That execution will determine whether the earnings beat can outweigh the roughly $79 billion balance-sheet burden.