ViacomCBS Stock Price : Transitioning From Traditional Media to Streaming

ViacomCBS Stock Price : Transitioning from Traditional Media to Streaming

ViacomCBS Stock Price : (VIAC) is a leading global media company that owns a range of consumer brands, including Paramount Pictures, Nickelodeon, MTV, Comedy Central, BET, and the Smithsonian Channel. ViacomCBS was formed as a result of a merger between Viacom Inc. and CBS Corporation in December 2019. Since then, ViacomCBS has experienced explosive growth in their stock, going from around $40 per share at the time of the merger up to a peak of $100 in March, 2021. However, due to a variety of factors, the stock has halved in the past week.

Streaming Wars: A Digital Game of Thrones

ViacomCBS has 3 business segments: TV Entertainment, which operates the CBS network and stations, Cable Networks, which operates various streaming services and cable networks, and Filmed Entertainment, which operates Paramount Pictures and helps produce/distribute films. 

In 2020, they held a strategic review of their assets, deciding to initiate accretive asset disposals and focus on their core: studios, networks and streaming. As a result of this review, ViacomCBS sold CNET Media Group in October 2020 and then agreed to sell Simon & Schuster in November of 2020 in order to streamline their business and increase their cash on the balance sheet. 

These divestitures helped contribute to the stock’s rise in value but there are still more business areas that can be sold, such as CW, of which they own 50%, and the BlackRock building, which would provide several billion dollars of additional cash for funding their core business products.

With a nearly 50% increase in streaming revenues in 2020 from the previous year, reflecting growth across their range of streaming services, ViacomCBS seeks to expand on this strong point of their business by investing in their rebranded streaming service, Paramount+. 

Paramount+ and the firm’s focus on streaming is what many analysts credit with being the main catalyst for the stock’s growth over the last year from a low near $10 per share to a high of over $100. 

With the rebranding of what they see as a cornerstone of the firm for the future, they are hoping to expand their reach to international markets along with a younger audience and cord-cutting continues as the trend. 

However, streaming is a very saturated and competitive market, especially with other traditional media companies also embracing launching their own streaming platforms such as Disney’s Hulu and Disney Plus, NBCUniversal’s Peacock, and Discovery’s Discovery Plus. 

In the competitive streaming market, the content available to subscribers is very important both to draw new customers and to retain users, so much of the money invested into Paramount Plus has been to secure deals for titles such as 60 Minutes+, Spongebob, A Quiet Place Part II, and Mission: Impossible 7. 

ViacomCBS smashed expectations in 2020, largely due to Covid-19 shutdowns, increasing total subscribers on streaming platforms Paramount Plus and SHOWTIME to 30 million globally, but ViacomCBS has an aggressive target of 65 million to 75 million subscriptions by 2024, which they believe Paramount Plus will accomplish.

In order to reach this goal, CFO Naveen Chopra has outlined a plan in which the company will ramp up investment in streaming content to $5 billion in 2024 from $1 billion last year. The funding would come from new equity offerings, sales of their unnecessary assets, and healthy cash flows. 

Management seems to be on the right track with a continuing shift in focus from traditional cable TV to video streaming. 

The market is valued at 50.11 billion in 2020 and is expected to grow at a CAGR of 21.0% from 2021 to 2028, so while lucrative, it’s incredibly competitive. The struggles of AppleTV, Discovery, HBO Max, and Comcast’s Peacock prove just how difficult it is to grow market share in this area. 

While ViacomCBS with their Paramount Plus and SHOWTIME streaming platforms is still far from top competitors Netflix with their 203 million subscribers and Disney Plus with their 100 million subscribers, ViacomCBS has a large network, extensive resources, and a vast library of content – nearly 20,000 TV shows and films – that they can leverage to quickly expand their streaming presence.

While ViacomCBS has a good plan moving forward for the future in their streaming products, the majority of their revenue continues to come from their traditional TV networks and advertising.

Unfortunately, the trend of cord-cutting and a stagnant advertising market present formidable headwinds for ViacomCBS.  They have a lot riding on their Paramount Plus so a failure could be potentially devastating for the company. 

ViacomCBS, due their expansive portfolio of brands, networks, and shows, is also a potential acquisition target for huge competitors like Apple, Amazon, and Netflix looking to expand their own entertainment segments. These tech giants could potentially take advantage of their high stock valuations to use their equity to buy ViacomCBS so that they can immediately gain share in the streaming space.

A major reason ViacomCBS plummeted this past week was due to their $3 billion dollar equity offering as they capitalized on their high valuation at the time. 

Adding fuel to the sell off fire were downgrades by various Wall Street analysts in addition to Wells Fargo and the rumored liquidation of a large shareholder,

Tiger Cub hedge fund, Archegos, which focuses on telecoms, media, and technology (TMT)  firms such as ViacomCBS. 

Now that ViacomCBS’ price has come back down to earth, might the shares be near fair value?  Or with their disastrous week now behind them, could ViacomCBS be a long-term play as they strengthen their market position in streaming services? 

Written by Andrew Fu

Sources

SEC Filings

Video Streaming Market Size & Share Report, 2021-2028 (grandviewresearch.com)

Paramount+ Is Entering a Crowded Streaming Market. What Will Make Consumers Subscribe? (morningconsult.com)

US Online and Traditional Media Advertising Outlook, 2020-2024 – Marketing Charts

ViacomCBS Stock Price : Transitioning From Traditional Media to Streaming