ViacomCBS: Strong Q3 with Key Concerns

ViacomCBS (NASDAQ: VIAC) is a diversified multinational mass media conglomerate, owning and operating broadcast television stations, and providing cable network services.

The company is also engaged in developing, producing, financing, acquiring, and distributing films, television programming, and other entertainment content, and publishing and distributing adult and children’s consumer books in digital, audio, and printed formats.

Shares of ViacomCBS have underperformed in 2021 with losses of 14.7% year-to-date. On March 15, 2021, VIAC stock made a 52-week high at $101.97 per share and investors were much happier.

Within 15 days by the end of March, the stock closed at $44.58, and a recovery hasn’t yet occurred. I am bearish on VIAC stock. It seems to be attractive, but some major factors weigh on my analysis. (See Analysts’ Top Stocks on TipRanks)

ViacomCBS: A March Crash and Its Causes  

A dramatic selloff of 56% in less than a month for VIAC stock was attributed to two main factors.

Archegos Capital Management, an investment firm and family office which had large positions in ViacomCBS, defaulted as a result of margin calls from a plethora of investment banks and had to liquidate blocks of VIAC stock.

A few days before, ViacomCBS had announced a secondary offering worth $3 billion, a decision that was made to fund its streaming services and for other general corporate purposes. There was a stock dilution of 5% back then that investors clearly did not like.

Business News

ViacomCBS has a wide range of global brands such as MTV, Paramount, Comedy Central, and CBS News, that have a “global reach of more than 4.3 billion subscribers across more than 180 countries.”

Business and entertainment news never stops. Some of the most recent news announced is that Paramount+ in mid-November 2021 had “its most successful week ever, adding more than one million new subscribers and setting a new record for total signups since its rebrand. The service also set new records for most hours streamed and the highest level of subscriber engagement.”

Q3 Results

ViacomCBS earned $6.61 billion during the quarter, up 13.2% compared to the same quarter last year. Operating income reported was $879 million, declining 3% year-over-year. Diluted EPS from continuing operations were $0.69, a decline of 25% year-over-year.

The investments in streaming services seem to be a great success, with streaming revenue up 62%, streaming advertising revenue up 48%, and streaming subscription revenue up 79% year-over-year.

For the quarter, global streaming subscribers rose to nearly 47 million, adding 4.3 million subscribers.

Revenue for the TV Entertainment segment rose 24% year-over-year to $2.92 billion, Cable Networks revenue increased 13% year-over-year to $3.46 billion, and Filmed Entertainment revenue declined 2% year-over-year to $580 million.

Key Concerns

Other than the stock dilution, data from Gurufocus shows that VIAC stock has a debt-to-equity ratio of 0.94, and a cash-to-debt ratio of 0.25, while its Altman Z-score of 1.56 places it in a distress zone.

The firm has had a declining sales growth for the past two consecutive years, a negative net income growth as well, and free cash flows that are positive but very volatile.

Wall Street’s Take

ViacomCBS has a Moderate Buy consensus based on five Buys, five Holds, and one Sell assigned. The average ViacomCBS price target of $48.82 represents a 57.2% upside potential.

Disclosure: At the time of publication, Stavros Georgiadis, CFA did not have a position in any of the securities mentioned in this article.