*I am a beneficial owner of this security (NASDAQ: VIAC; AKA ViacomCBS). This is not a recommendation to buy any financial product. It is not financial advice. Don’t sue me.
I recently bought some shares of ViacomCBS (NASDAQ:VIAC). ViacomCBS is an American television company which is taking their big shot at the streaming market. Initially, to me, this company’s stock appeared way too cheap for what it is. And I still think that there is a lot of value in this stock.
Yet more recently, I have become less sure about this company. The lack of visibility has started to dawn on me. This has lead to a plethora of research. Now, I am ready to share with you my insights about this company – the fruits of my labour.
In this article I will lead you through the Good, the Bad & the Ugly of ViacomCBS, so you can decide for yourself if you want to invest. Starting with the Good.
The Good
✅ Brand Recognition
You would be forgiven for thinking that ViacomCBS is a boring company. Its name, for one, is bland and corporate sounding. But take a look behind the curtain and you’ll find that they own an arsenal of quality media brands. Like it or not, Viacom is profiting off your favorite TV shows, sports, and movies.
They are also well diversified. CBS, for one, offers news and sports. Nickelodeon offers great comedies like SpongeBob and iCarly. Paramount is a movie juggernaut recognized around the world. Bellator competes with UFC in the Mixed Martial Arts market.
These brands provide the company with recurring, diverse revenue streams.
✅ Strong Fundamentals
And these brands have been putting in work for ViacomCBS, producing great returns. Returns which have been slept on by Wall Street.
When we look at ViacomCBS compared to other major American media companies, we see that it is trading at significantly lower multiples. For one, it’s the only company on this list which has revenue greater than market capitalization.
This is why I decided to buy into this company in the first place: the low multiples.
✅ Growing Streaming Revenue
Growing streaming revenue is another big plus for ViacomCBS. The company is taking a bold run at the streaming industry with their release of Paramount+. Paramount Plus is will compete in the market with the likes of Disney, Amazon Prime and Netflix.
The companies streaming revenue is growing at a rapid pace, reportedly up 81% year/year last quarter. Furthermore, it has bolstered its streaming subscribers to over 42 million (note: not all of these are Paramount+ subscribers). What’s more, the company is continuing to expand the presence of Paramount+ to other regions of the world.
It also has an advertising supported streaming platform called “Pluto+” which is predicted to generate $1Billion in revenue this year. Not too shabby.
✅ Traditional TV is not Dead.. Yet!
Although more people are unsubscribing from cable, it continues to be a very lucrative and profitable business for ViacomCBS. In fact, it’s the bread and butter of this companies’ profits, and likely will be for some time. While they’ve been saying TV is dying for a while now, it’s more like a slow-burn than a crash-and-burn.
Many people like to tune in to traditional TV for things like Sports and Live News, both of which CBS specializes in. The long and the short of it: traditional TV will continue to generate profit for VIAC going forward.
The Bad & The Ugly
Now we get down to the not-so-good aspects of this company.
❌ Streaming: Low ARPU (Average Revenue Per User)
Unfortunately for VIAC, the streaming industry they’re entering is a buyer’s market. Streaming services are a lot cheaper than cable packages. That’s tough on the Media Companies. To remain viable, companies must gather loads of subscribers. This is called “achieving economy of scale”.
To illustrate: take another look at the “US Media Players” image. Notice that Netflix – the industry superstar – only pulled in $28 Billion dollars revenue this year. That is remarkably low for the reach that Netflix has (more than 200 million subscribers), and barely exceeds VIAC’s own $27 Billion in revenue! Again, the importance of subscribers to Paramount+’s success cannot be underestimated.
This is not to say that ViacomCBS can not succeed in streaming, only that the margin for error is low. My understanding is that there is only enough room for a handful of players. That’s why they call it the streaming wars: these companies are out for blood.
What’s more? Viacom is going to have to go mobile. And by mobile I mean international. American subscribers will simply not be enough if Viacom wants to maintain its current revenue. They will have to head into the great unknown, into uncharted waters. If that’s not a risk, I don’t know what is.
❌ Conflict of Interest?
One of ViacomCBS’s major sources of revenue: Licensing revenue. Essentially this is money they get for licensing out their content. To who, you might ask. Their competitors!
Of course, they are being paid for letting their competitors use their precious content. But will that be enough to offset losses in subscribers? After all, why would I subscribe to Paramount+ if I can get most of the content already on Netflix!? Anyways, we will see if they continue to do this or pursue a more protective approach like Disney is taking.
❌ Low Visibility
ViacomCBS’s future visibility is low. It simply remains to be seen where – or if- traditional cable subscriptions level off. Will the company be able to properly balance traditional media with their new streaming ventures? Will the company be sold off to a bigger company like Apple or Comcast, and if so will the price be good?
As we know, investors don’t like uncertainty. Especially the institutions. This low certainty, and resulting low confidence, could keep the stock price depressed.
To Conclude:
I like the company, and for my money it is a good bet. Yet, I could certainly appreciate how someone might think there is too much uncertainty for their own money. Overall, it is one of the remaining large cap value stocks in the United States stock market. That’s not something to scoff at.
As always, this is not a recommendation to buy the stock. Please do your own research!
Anyways, I hope that you learned something valuable today! Let me know in the comments if you think VIAC will be a winner or a loser going forward. And as always,
Happy Investing.
