Paramount Skydance (PSKY): They Raised Guidance. Q3 Is Guided DOWN.

Paramount Skydance Corporation (PSKY) Q2 2026 — Revenue $6,913M, UP 1.0% YoY, ahead of a ~$6.88B bar. Adjusted EBITDA $1,099M, UP 27%, a 15.9% margin vs 12.6%. Adjusted EPS $0.18. But GAAP EPS was $0.04 vs $0.08 - net earnings fell 28% while the share count rose 65%. DTC +9%, Studios +16%, TV Media -9%. FY26 adj EBITDA guide RAISED to $3.8-3.9B. Stock +4.6% to $8.77. Paramount raised its full-year adjusted EBITDA guide to $3.8-3.9B and the stock rose 4.6%. But Q3 is guided to $875-975M against a $997M comparable base - a decline of 2% to 12%. The full-year raise is built on two quarters that have already happened. THE CALL: HOLD (3/5, A GENUINELY BETTER BUSINESS, PRICED ABOUT RIGHT, ON A BALANCE SHEET WITH NO ROOM FOR ERROR) — base-case value ~$9.3 vs ~$8.77 today. KEY METRICS: - CALL: HOLD 3/5, fair value ~$9.30 vs $8.77 (+6%), BELOW the Street's $11.79 average (+34%). Base case: 2028 adjusted EBITDA of $4.15B on a 6.25x exit multiple with net debt paid down to $12.3B, discounted at 12% = $9.31. Bear $4.64 (TV decline accelerates, synergies stall, 5.5x). Bull $15.27 (full synergy capture, 7.25x). Run backwards, $8.77 only requires 2.2% annual EBITDA growth - an undemanding bar. The Street's $11.79 requires 10.9%, and management just guided Q3 DOWN. - THE MARKET CAP EVERY SCREENER SHOWS IS WRONG - THIS IS DUAL CLASS. The 10-Q cover page at July 31 2026: Class A 31,500,087 shares PLUS Class B 1,090,445,692 = 1,121,945,779 total. At $8.77 that is $9,839M, not the ~$9.53B the data feeds publish from the Class B line alone. Then add $15,200M of gross debt less $1,627M of cash = $13,573M of net debt. Enterprise value $23,412M - so the equity is only 42% of what you are analysing, and net debt is 1.4x the market cap. - EVERY YoY COMPARISON IS SUCCESSOR vs PREDECESSOR. The Skydance merger closed Aug 7 2025 and established a NEW ACCOUNTING BASIS. Both Q2 columns are clean three-month periods, so the lengths compare - but the basis does not. Proof in one line: depreciation and amortisation went from $87M to $364M, a 4.18x step-up, on revenue that grew 1%. That is purchase accounting, and it is most of the gap between $0.04 GAAP and $0.18 adjusted. Paramount's own letter says the +44% DTC profit growth includes 'a benefit related to the change in accounting basis'. - ADJUSTED EBITDA IS NOT CASH - ONLY ~10% OF IT CONVERTS. Management guides FY26 adjusted EBITDA of $3.8-3.9B and free cash conversion of AT LEAST 10% - roughly $385M of actual cash on $3,850M of EBITDA. Interest expense ran $255M in the quarter (~$1.0B a year, a 6.7% cost on $15.2B of gross debt), which alone eats 27% of adjusted EBITDA. H1 free cash flow was $354M, already beating the floor. Net leverage 3.5x. Operating income bridge ties exactly: 6,913 - 4,443 - 1,443 - 364 - 188 = 475. - THE WARNER BROS. DISCOVERY FINANCING IS STRUCK FAR ABOVE THE SHARE PRICE. The Ellison Parties and RedBird signed subscription agreements for up to $46.7B of new Class B stock at $16.02 a share - an 83% premium to $8.77. Syndication prices off a 20-day VWAP with a $16.02 CEILING and a $12.00 FLOOR, so the stock trades 27% BELOW the floor of its own financing range. If the deal is blocked on antitrust grounds Paramount owes a $7.0B regulatory fee plus the $2.8B already paid to Netflix - both sponsor-funded at $16.02, or ~612M new shares, taking the count to ~1.73B and the same equity value to about $5.68 a share. What to watch: Changes our mind UP: a September quarter that beats the guided decline, cash conversion materially above 10%, or TV Media declines moderating toward 5%. Confirms the bear: the WBD deal blocked with the $7.0B fee triggered, or net debt still above 3.5x at year end. We would buy $7.00-$7.80. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.