Media and entertainment giant ViacomCBS’s (VIAC) shares dipped after releasing Q3 2021 earnings, after skeptics focused on the year-over-year drop in earnings per share.
Interestingly, however, the company’s underlying business seems to be strong. (See Analysts’ Top Stocks on TipRanks)
Streaming Fuels Growth
According to Digital TV Research, global OTT advertising revenue is expected to reach $129 billion, and U.S. OTT revenue to hit $56 billion, in 2021.
Global growth in the streaming space is a positive. Management at Viacom mentioned in its third-quarter earnings call that it plans to report a separate direct-to-consumer streaming services segment in order for investors to better understand the company’s business.
Notably, Viacom self-funds its streaming business with the free cash flow generated in its linear TV segment. Viacom CEO Bob Bakish believes that this is a major testimonial of its financial flexibility and gives a strong competitive advantage to the company over its peers.
Moreover, the extensive library of content is another selling point of Viacom’s streaming services business.
Notably, the company’s subscription video on-demand OTT subscribers grew 67% year-over-year and 10% sequentially in Q3, which is encouraging.
Furthermore, growing cord-cutting among viewers is expected to lead to falling revenues in the U.S. linear pay-TV, which gives further room for OTT adoption, as observed by market research firm eMarketer. This can benefit Viacom’s streaming business further.
Expert Weighs in
Following the print, Needham analyst Laura Martin expounded some strong points on Viacom’s strengths and reiterated a Buy rating on the stock with a price target of $80. “We estimate that VIAC’s streaming assets are today worth more than its total enterprise value today,” said Martin.
Martin expects Viacom to witness a CAGR of 40% in its global streaming revenues between 2020 and 2022, eventually reaching $5 billion in 2022 revenues.
Wall Street’s Take
Wall Street analyst consensus is also optimistic about Viacom, with a Strong Buy rating based on six Buys, four Holds, and one Sell. The average Viacom price target of $55 indicates an upside potential of 59.4%.
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Disclosure: At the time of publication, Chandrima Sanyal did not have a position in any of the securities mentioned in this article.
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