Are ViacomCBS’ Investments in Content Making It Worth Buying?

ViacomCBS (VIAC) is benefiting from a solid portfolio of streaming services and strong viewership of PlutoTV. Its latest streaming service, Paramount+, is boosting subscriber growth. Not only this, ViacomCBS’ TV networks like Showtime, BET, Comedy Central and Nickelodeon are also witnessing strong traction among viewers.

Impressed with ViacomCBS’ streaming efforts, Wells Fargo analyst Steven Cahall recently upgraded his rating on the stock to a Buy and raised the price target to $60 from $45, marking the end of a long era of bearish rating by the research firm.

“A stronger balance sheet and unique mix of content (e.g., sports, reality, film, originals), combined with a strong start to Paramount+, underlie our confidence in the story,” said Cahall. (SeeViacomCBS Dividend Date and History on TipRanks)

The analyst projects SVOD (subscription video on demand) and AVOD (advertising VOD) users to hit 147 million by the end of 2022. Cahall is also optimistic about the prospects of Paramount+ for the second half of 2021. Moreover, the NFL and SEC football seasons are expected to significantly benefit the company by driving its gross advertisement revenues.

The equity raised in March this year, along with proceeds from spin-off activities, has strengthened the company’s balance sheet. This has positioned ViacomCBS more comfortably to pursue content investments, and that is exactly what it is doing.

Moreover, on August 18, ViacomCBS and Comcast (CMCSA) announced that they would launch a new streaming service — SkyShowtime — for 20 European markets, including Spain, Denmark, Portugal, the Nordic countries, the Netherlands, and Central and Eastern Europe. This deal is expected to materialize by the end of the third quarter of 2022, as noted by Cahall. This impending launch is expected to keep the advertising revenues strong throughout the next year and possibly beyond.

Interestingly, the analyst drew key comparisons between ViacomCBS and Disney’s (DIS) Hulu platform and came up with some insights into the former’s profitability expectations and valuation.

Cahall anticipates Hulu’s EBITDA margin to currently be in high-single to low-double-digits in percentage terms. “We see parallels between Disney’s Hulu and ViacomCBS’ streaming efforts. By 2022 end, ViacomCBS should have 70 million SVOD subscribers versus 54 million Hulu subscribers. Ad revenue should be $3.2 billion for ViacomCBS and $3 billion for Hulu. Both have a combination of originals, films, sports, etc.,” the analyst said.

Nonetheless, growing consolidation in the Media industry has made the analyst weigh in on ViacomCBS as a prospective bet. Cahall is concerned that the industry consolidation trends are expected to be an unfavorable catalyst for ViacomCBS’ shares.

“M&A interest from Internet companies for at-scale media assets would change our view on ViacomCBS. Since the Discovery-WarnerMedia announcement, the NY Post, WSJ, and Bloomberg have written on ViacomCBS’ consolidation prospects. NBCUniversal has been featured too, and if NBCUniversal were to be merged or acquired, it could leave VIAC looking for a dance partner,” he observes.

The Wall Street is optimistic about ViacomCBS and has a Strong Buy consensus rating based on 7 Buys and 2 Holds. The average ViacomCBS price target of $61.78 implies 55.9% upside potential from current levels.

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.