12:07 PM EDT, 08/09/2024 (MT Newswires) -- Paramount Global's ( PARAA ) workforce reduction plan under its cost-saving initiative shows the company "is not standing still" as it awaits the completion of its merger deal with Skydance Media, MoffettNathanson said Friday.

The media, streaming and entertainment company will reduce its US-based workforce by nearly 15% to realize $500 million in annual run rate cost savings, co-Chief Executive Chris McCarthy said on a conference call late Thursday discussing Paramount's second-quarter results, according to a Capital IQ transcript. Last month, the company announced it will merge with production company Skydance to establish a new entity through a two-step transaction.

Paramount will eliminate "redundant" functions within marketing and communications, and cut jobs in finance, legal, technology and other support functions, McCarthy told analysts. "These actions will take place in the coming weeks and will largely be completed by the end of the year." The Skydance transaction is expected to close in the first half of 2025.

"Barring any surprise bids at the last minute ahead of an (Aug. 21) 'go-shop' deadline, Paramount is set to come under the control of David Ellison's Skydance and team," MoffettNathanson analysts, including Robert Fishman, said in a Friday note to clients. "Paramount may be in a lame duck period awaiting this transition in power, but it is clear the company is not standing still in the interim."

Late Thursday, the company reported that its second-quarter adjusted earnings rose year over year, while revenue declined below Wall Street's estimates. Paramount recorded a $5.98 billion goodwill impairment charge for the cable networks unit.

MoffettNathanson now expects the TV media segment's earnings before interest, taxes, depreciation, and amortization to fall 16% in both 2025 and 2026, compared with low double-digit drops projected previously. The brokerage cited a "greater understanding of the impact of future affiliate renewals, as well as little optimism on linear advertising" as reasons for the revised forecast.

Paramount's direct-to-consumer, or DTC, business is expected to be "a drag" on core profitability in the second half of 2024, despite logging its first profitable quarter, the analysts said. "While we forecast DTC losses to improve in 2025, it will likely be some time before the segment becomes a significant EBITDA contributor."

Paramount is "confident" that Paramount+ will reach domestic profitability next year, McCarthy said on the call, adding that the company is in "active" talks regarding potential partnerships for the subscription service.

Paramount+ likely has "a lot to gain" through a potential partnership, the MoffettNathanson analysts wrote. "As a standalone company, we do not think its balance sheet allows Paramount+ to keep investing in the necessary content to reach scale globally," the analysts said. "But how aggressively Skydance's team will end up using its capital to accelerate its DTC growth initiatives is probably the biggest question (Paramount) investors need to better understand."

MoffettNathanson reduced its price target on the Paramount stock to $10 from $12 while maintaining its neutral rating. The brokerage increased its 2024 earnings outlook to $1.30 a share from $1.05 while lowering its 2025 forecast to $1.15 from $1.30.

Price: 10.29, Change: +0.08, Percent Change: +0.79