Shares of Paramount Skydance Corp (PSKY) are down about 4.8% in early trading Tuesday, even though the company reported a pretty solid first quarter yesterday. The stock is at $10.60 as of this writing, and the market seems to be focusing on the fine print rather than the headline numbers.

Needham analyst Laura Martin, who has a Hold rating on the stock, walked through the results in a note. Revenue came in at $7.3 billion, up 2% from a year ago. Adjusted OIBDA — that's operating income before depreciation and amortization, a key metric for media companies — jumped 59% to $1.16 billion. That sounds great, but earnings per share actually fell 13% to $0.15, so the bottom line wasn't as rosy.

The bright spot is direct-to-consumer (DTC). Revenue there grew 11% year-over-year, led by Paramount+, which added 700,000 subscribers to reach 79.6 million total. That's a 19% jump in subscribers. Management expects DTC revenue growth to accelerate in 2026, thanks to more subscribers, higher average revenue per user from price hikes, and better ad monetization on Pluto TV.

But the big story — and the big question mark — is the planned acquisition of Warner Bros. Discovery (WBD). Paramount Skydance says it expects to close the deal by September. Martin calls that timeline "optimistic." Her reasoning: "Although management is executing well on its vision (so far), this business is tiny compared to WBD, which PSKY cannot discuss until after the deal closes." In other words, there's a lot of uncertainty around integrating a much larger company, and investors are essentially buying a leap of faith.

Martin lays out three things investors need to believe if they're buying Paramount Skydance shares right now: First, that the Warner Bros. Discovery deal will actually close. Second, that Paramount Skydance can successfully manage a much larger company. And third, that the film and TV businesses won't be disrupted by generative AI cutting content creation costs by more than 75%. That last one is a big wild card for the entire industry.

Looking ahead to the second quarter, management guided for revenue of $6.75 billion to $6.95 billion — essentially flat year-over-year at the midpoint — and adjusted OIBDA of $900 million to $1 billion. The driver there, according to Martin, is "DTC revenue growth and cost-cutting."

So the streaming business is humming along, but the market is clearly worried about the acquisition risks and the earnings compression. For now, the stock is taking a hit, and investors are waiting to see if the September timeline holds up.