ViacomCBS Stock Is Tumbling. Investors Don’t Like Its New Name and Updated Streaming Strategy.
ViacomCBS stock was down 22% in Wednesday trading.
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ViacomCBS is doubling down on its nascent streaming strategy, with plans to steer more content and investment toward Paramount+ and a new reporting structure and corporate brand to emphasize that focus.
It’s the latest shift from ViacomCBS (ticker: VIAC) that pushes expected earnings farther out into the future, and investors don’t appear willing to go along with management’s optimism just yet.
The strategy demands patience from ViacomCBS shareholders, with meaningful streaming profits only arriving in the second half of this decade. Needless to say, a lot can happen between now and then.
ViacomCBS stock was down 22% in recent trading, following the company’s fourth-quarter earnings report and a virtual investor event on Tuesday evening. The shares were trading around $27.93, near their lowest levels since October 2020.
“From a stock perspective, it will likely remain challenging to shift investor appetite for underwriting the long-term viability of these streaming initiatives,” wrote RBC Capital Markets analyst Kutgun Maral on Wednesday. “And more imminently DTC investments will pressure profitability in 2022-23 more than expected, which we believe will weigh on sentiment until there is greater investor comfort that this is the final earnings ‘reset.’”
After a record quarter of subscriber growth to end 2021, ViacomCBS had 56 million viewers on its Paramount+ and Showtime services, plus 64 million monthly active users on the advertising-supported Pluto TV. Management lifted its long-term guidance to 100 million paying subscribers by the end of 2024, versus its prior target of 65 million to 75 million and Wall Street analysts’ consensus of 89 million that year. Those figures compare with almost 130 million Disney+ subscribers and 222 million Netflix subscribers at the end of last year.
ViacomCBS continues to expect to reach 100 million to 120 million monthly active users on Pluto TV by the end of 2024. And management expects direct-to-consumer revenue to increase to more than $9 billion by that year, from $3.3 billion in 2021 and their prior target of $6 billion.
Getting there won’t be cheap, however, and that’s giving Wall Street some pause. Management expects annual DTC content investment to reach $6 billion by 2024, from $2.2 billion last year. Streaming losses should increase this year and next before declining.
A lot of that will be spent on international films and TV, with plans to be in more than 60 countries by the end of this year and more next year. Plus, all new Paramount Studios films will go exclusively to Paramount+ starting in 2024—meaning no licensing or other revenue from those. At the event on Tuesday evening, ViacomCBS unveiled a bevy of film and TV content coming to its streaming services.
To put a bow on it all, ViacomCBS will be renamed Paramount Global—after the company’s more-than-century-old Hollywood film studio—and its stock ticker will change to “PARA” on Thursday.
“We are making the right investments in the right content in the right places,” Chairwoman Shari Redstone said at Tuesday’s investor event. “We have set in motion a virtuous cycle. Our legacy business powers our transformation, and our transformation enhances and expands our legacy.”
The picture is still of a legacy media company in the midst of an ambitious pivot to a streaming-based business model, but now with a higher-octane strategy that increases risk for investors and wipes away a meaningful chunk of expected profits over the next few years. Despite all that, Paramount Global will remain a minnow relative to Walt Disney (DIS), Netflix (NFLX), and the soon-to-be combination of Discovery (DISCA) with AT&T
‘s (T) WarnerMedia.
“Each investor may see something different when they look at VIAC,” wrote Wells Fargo analyst Steven Cahall on Tuesday. “Bulls see the DTC execution and upgraded long-term targets. Bears see another estimate cut and not enough assets to climb to cruising altitude.”
ViacomCBS stock is certainly cheap, at less than 10 times expected 2022 earnings. Those estimates are likely to come down as analysts incorporate management’s new spending plans into their models, but it’s still fair to say that there’s plenty of skepticism priced into the stock at current levels.
It will be up to management to hit their new subscriber targets and show that greater earnings are in store for 2024 and beyond. Streaming will need to prove it can be profitable, as traditional TV revenue declines and the company licenses out less of its content.
BofA Securities’ Jessica Reif Ehrlich downgraded ViacomCBS stock to Neutral on Wednesday morning and lowered her price target to $39 a share from $53. “Our prior bullish thesis was largely predicated on VIAC being a potential attractive target amid a wave of industry consolidation,” she wrote. “Our views on this have not changed, however it does not appear a potential sale is imminent given VIAC’s near term streaming aspirations. We now head to the sidelines given the near/intermediate term headwinds from streaming content investments.”
Wall Street analysts are relatively split on the stock: Half of those surveyed by FactSet have a Hold or equivalent rating, 40% are at Buy, and 10% are at Sell. Their average price target is about $42, according to FactSet. That would be an upside of roughly 45% from Wednesday morning’s levels. The stock currently sports an annual dividend yield of about 3.4%.
Write to Nicholas Jasinski at [email protected]
