Paramount, Warner Bros. Discovery face advertising headwinds: Wolfe Research

Investing.com -- Advertising pressures are seen as a risk to both Paramount Global (NASDAQ:PARA) and Warner Bros Discovery Inc (NASDAQ:WBD) stocks, which Wolfe Research downgraded on Friday.

Wolfe Research cut its rating on Paramount to Underperform from Peer Perform with a $14 price target. The analyst also cut Warner Bros. Discovery to Peer Perform from Outperform.

Advertising is an issue for both media companies, Wolfe said in its research notes. 

Paramount’s linear advertising appears unable to support the streaming transition, the research note said. “While Paramount has abundant streaming inventory in Paramount+&Pluto to offset linear losses, we argue that 1) the overall streaming supply is outpacing demand and 2) high margin linear deterioration just simply means more for a company playing catch up in the streaming wars,” the note said.

Wolfe says Paramount’s linear advertising is about 28% of firm revenue, implying outsized risk for the stock relative to other media outlets. Shares are up 0.4% in Friday trading, but are down 2% for the year so far.

At the same time, Warner Bros. Discovery is also “highly exposed” to linear advertising, the firm said in a second note. “Though we find WBD attractive on a relative basis, we find it prudent to have no Outperform ratings in this sub-sector at this time given rising TV advertising risks,” it said.

Shares of Warner Bros. Discovery are down 0.1% in Friday trading, but up 33% so far this year.