Paramount Skydance Stock Soars. A Few Possible Reasons for Its Big Move.

Paramount and Skydance completed their blockbuster merger last week. (Gabby Jones/Bloomberg)

Paramount Skydance was the biggest gainer and one of the most active stocks in the S&P 500 on Wednesday. A flurry of excitement around the recently formed media conglomerate is sending shares skyrocketing.

Paramount and Skydance completed their merger last Thursday, creating a new company formally called Paramount, a Skydance Corporation. The stock floundered across the first few sessions after the deal closed, but that all changed this week.

After climbing 8.4% on Tuesday, Paramount Skydance shares were up 40% to $15.32 in Wednesday trading. That’s the best two-day stretch on record dating back to Paramount’s initial public offering in 1990, according to Dow Jones Market Data.

Created with Highcharts 9.0.1Paramount SkydanceSource: FactSetAs of Aug. 13, 4 p.m. ET

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The sharp rise raises questions about whether Paramount is behaving like a GameStop -style meme stock. Some market-watchers seem to think so.

“Paramount, (PSKY), is a meme stock!!!!!!!!!!!!!!” CNBC anchor Jim Cramer wrote in an X post early Wednesday, even before the company’s afternoon surge. “Small float… shocking.”

Cramer appears to be referring to Skydance owning around 70% of the equity in Paramount. Public investors own only about 300 million of the roughly 1 billion outstanding shares, a relatively low proportion. Of that number, 89 million shares were sold short as of July 31.

It’s possible the stock was experiencing a short squeeze on Wednesday. A squeeze— one feature of the GameStop craze in 2021—occurs when a heavily shorted stock rises suddenly, which forces short sellers to buy back shares to cover their positions and drives demand even higher.

Indeed, the stock was the second-most active in the S&P 500 index on Wednesday, according to Dow Jones Market Data.

Much like GameStop or AMC Entertainment Holdings , another meme stock, Paramount is a well-known name in entertainment that has languished well below its all-time high over the past several years. There was some chatter on Tuesday and Wednesday about the stock on r/wallstreetbets, the Reddit forum popular with retail traders during the GameStop meme craze, but nothing extraordinary.

The company was a recent Barron’s stock pick.

Some more fundamental factors may also be behind the sharp rise. For one, CEO David Ellison has wasted no time striking deals to put Paramount in the limelight.

The company on Monday announced a seven-year agreement with TKO Group Holdings worth around $1.1 billion a year that will give Paramount exclusive media rights to all Ultimate Fighting Championship events in the U.S.

“We view today’s UFC rights agreement (and interest in future international rights) as a meaningful indication of the company’s strategy to bolster its sports and streaming assets,” wrote Guggenheim analyst Michael Morris in a research note.

Information on UFC advertising is limited, Morris added, but Paramount likely will monetize the deal at the same level as current rights-holder ESPN, which would mean an estimated $300 million in annualized ad revenue. Paramount also will benefit from a domestic user base around double that of the ESPN+ streaming service, and the lack of a pay-per-view paywall typical in combat sports broadcasts, Morris said.

While notable as a standalone deal, the UFC agreement also showcases Ellison’s vision of investing in growth areas like sports and streaming, Morris argued. Combined with strong growth in revenue from the Paramount+ streaming service, growing streaming engagement, and record low churn, there are plenty of reasons for optimism.

Guggenheim initiated coverage of the newly formed company with a Buy rating and a $13 price target.

Ellison’s last name doesn’t hurt in attracting attention and dollars, either.

David is the son of Oracle’s Larry Ellison, whose net worth is estimated at over $300 billion, according to Bloomberg. That gives Skydance founder David Ellison deep pockets to make investments and acquisitions, or even buy out the company altogether, as Barron’s floated last week.

Write to Nate Wolf at nate.wolf@barrons.com