Why VIACOM has been and still is the best media play for 2018.
Viacom Inc. is an American multinational media conglomerate with interests primarily in cinema and cable television. It is currently the world’s ninth largest broadcasting, cable, and media company, in terms of revenue; behind Comcast, The Walt Disney Company, Time Warner, 21st Century Fox, Bertelsmann, Dish Network, Sony, and Vivendi. Voting control of Viacom is held by National Amusements, Inc., a privately owned theatre company controlled by the billionaire Sumner Redstone.Redstone also holds, via National Amusements a controlling stake in CBS Corporation.
The current incarnation of Viacom was created on December 31, 2005, as a spin-off from the original incarnation of Viacom, which was renamed as CBS Corporation after the spin-off. CBS Corporation currently retains control of the over-the-air broadcasting, TV production, subscription pay television, (with Showtime Networks) and publishing assets (with Simon & Schuster), which were previously owned by the original Viacom. Predecessor firms of the original Viacom included Gulf+Western (which later became Paramount Communications) and Westinghouse Electric Corporation. Comprising BET Networks, Viacom Media Networks and Paramount Pictures, the current Viacom operates approximately 170 networks, reaching approximately 700 million subscribers in approximately 160 countries.
Cable channels owned by Viacom Media Networks
VIAB is trading with a trailing P/E of 7x, which is lower than the industry average of 20.4x. Although some investors may jump to the conclusion that this is a great buying opportunity, understanding the assumptions behind the P/E ratio might change your mind.
P/E is often used for relative valuation since earnings power is a chief driver of investment value. It compares a stock’s price per share to the stock’s earnings per share. A more intuitive way of understanding the P/E ratio is to think of it as how much investors are paying for each dollar of the company’s earnings.
Viacom (VIA, VIAB) B shares are up 9.2% despite missing on revenues with Q1 earnings after profits cleared expectations, and many investors looked past the results for clues to a potential re-merger with CBS (or anyone else).
While revenues fell nearly 8%, operating income rose 2% to $717M as reported, mainly on lower expenses. Adjusted operating income fell 4%.
Net earnings grew 35% principally due to tax reform; adjusted near earnings were flat at $413M.
In Media Networks, a drop in affiliate revenues more than erased a 1% gain in ad revenues. Domestic revenues in the division fell 6% while international revenues grew 18%. Meanwhile, Filmed Entertainment was hit by number and mix of current-quarter releases.
Revenue by segment: Media Networks, $2.56B (down 1%); Filmed Entertainment, $544M (down 28%).
The rally in Viacom, Inc. (NASDAQ:VIA,NASDAQ:VIAB) continues. VIA stock is up after a solid Q4 earnings report on Thursday morning. VIA Class B shares are up 10%, and the Class A shares have gained 7%.
Indeed, Viacom’s Class B shares now have bounced more than 50% after hitting an eight-year low in November. And there has been some good news here, even beyond Thursday morning’s release. Viacom reportedly is considering merging (again) with CBS Corporation
Media stocks as a group generally have rallied, as the deal between Walt Disney Co (NYSE:DIS) and Twenty-First Century Fox Inc(NASDAQ:FOX,NASDAQ:FOXA) highlighted the potential value of media assets like those owned by Viacom.
At the same time, however, there were plenty of reasons why VIA stock hit that eight-year low just a few months back. Viacom’s Q4 earnings might have come in ahead of expectations – but they still declined year-over-year.
Cord-cutting defections aren’t slowing, as witnessed by subscriber growth at Netflix, Inc. (NASDAQ:NFLX). Viacom stock might look cheap – but shares of declining businesses usually are.
Viacom improved its 2018 guidance for domestic affiliate revenues: it now expects a decline toward the low end of the mid-single digits, compared with a previous call for a mid-single digit drop. Obviously, this is still a decline, but 200 basis points less of a decline is meaningful when it comes to Viacom.
The company has said affiliate-fee growth should turn positive in 2019 after it inked distribution deals with Altice USA and Charter Communications Inc.
Price Percent Change
Potential Streaming service
Viacom said today its planning to launch its own ad-supported streaming service by September 2018, the end of its fiscal year. The service will include “tens of thousands of hours of content” from across Viacom’s library. From a report: Viacom had hinted about its plans in streaming before, but it shared a few more details on the call about what the service will include. The company, which owns cable TV channels like MTV and Comedy Central, already licenses some of its content to other streaming services like Sling TV and DirecTV Now, as well as newcomer Philo. “It’s going to be rolled out in the U.S., in terms of the amount of content that it’s going to have, it’s going to have tens of thousands of hours of content that cut across the library we have on a global basis,” the company said.