VIAC Stock May Be Worth More, but It Isn’t a Long-Term Play
With its price cut nearly 60% by the fall of Archegos Capital, analysts are pounding the table for ViacomCBS (NASDAQ:VIAC) stock.
George Soros seems convinced. Last quarter VIAC stock was one of the biggest buys for the Quantum Fund he manages, but he’s in the hole if he didn’t do all his buying at the end of the month.
VIAC stock was at $100 on March 22 and will open this morning right around $41.50.
At its present price ViacomCBS has a market cap of $27.4 billion on 2020 sales of $26 billion. It also has a 24 cent/share dividend yielding 2.28%. It’s cheap. In the near term, it should go up.
What about the longer term?
A Closer Look at VIAC Stock
The bulls see a great streaming play. ViacomCBS owns three streaming platforms, Paramount Plus, Showtime and Pluto. The last is an ad-supported “skinny cable” bundle. The company’s first-quarter earnings were called strong, with streaming revenue of $322 million, 11% of the total, and total revenue up 14%.
Net earnings were $911 million, 1.46 per share, on revenue of $7.4 billion. A year ago, net was $516 million, 84 cents per share, and revenue of $6.5 billion.
There were improvements across the board, in broadcast, movies and cable. The company recorded $1.6 billion of free cash flow. It ended with $5.5 billion in cash after raising $2.7 billion through new stock and convertible bonds.
Bank of America (NYSE:BAC) did a rare “double upgrade” on ViacomCBS after earnings, from underperform to buy.
Analyst Jessica Ehrlich wrote that the company has a “deep breadth of content” and emphasized its “scarcity value.” That’s an indication that a sale, in whole or in pieces, may be on the way.
Other analysts also pounded the table. Our John Jagerson and Wade Hansen of Strategic Trading suggested that June’s buy options are the best way to play it.
ViacomCBS Disappoints
Even though first-quarter results were buoyed by the Super Bowl, that profit machine won’t come back until 2024. Until then, ViacomCBS still has the problems it had before: declining franchises in cable, broadcast, and theaters.
The streaming push, which executives emphasized in their spring presentation to analysts, has to make up for falling income elsewhere over time.
Then there’s the assumption of a sale. As with many media companies, this can’t happen without the cooperation of management. That means Shari Redstone has veto over any deal. Having just gotten what she wants, that’s unlikely to be coming any time soon.
Both ViacomCBS and Comcast’s (NASDAQ:CMCSA) Peacock are stuck in the middle of the streaming pack.
That’s why AT&T (NYSE:T) is combining its entertainment assets with Discovery (NASDAQ:DISCA). They’re bigger than niche players like AMC Networks (NASDAQ:AMCX), but they’re all much, much smaller than Alphabet’s (NASDAQ:GOOGL), YouTube, Netflix (NASDAQ:NFLX), and Amazon (NASDAQ:AMZN) Prime.
The Bottom Line
The collapse of Archegos means VIAC stock is worth more than it’s selling for, but that doesn’t necessarily make it a buy for long-term investors.
The company is no longer coming up with new ideas, just spin-offs of old ones. Even taken together Pluto, Showtime and Paramount Plus aren’t as big as Walt Disney’s (NYSE:DIS) Disney+.
Then there’s the problem I’ve pointed out several times, time. Cable limits what you can watch at any time, through a schedule. Streaming doesn’t. I believe most consumers will content themselves with one or two streaming services, not a half-dozen. My millennial-age children don’t pay for TV at all, preferring YouTube with ads.
Too many companies are trying to get through the streaming window. There will be blood, in the form of red ink on balance sheets.
On the date of publication, Dana Blankenhorn held LONG positions in AMZN and BAC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.
