Almost a year ago, ViacomCBS (VIAC) stock collapsed to a
10-year low of $11 due to the coronavirus crisis. The market priced the stock
for a disaster due to the impact of the pandemic on the advertising revenues
and the movie business of the company. However, as ViacomCBS has exhibited
fairly resilient business performance and has decent growth prospects ahead,
its stock has nearly quintupled off its bottom.
It is also worth noting that ViacomCBS is a significant
holding of Baupost Group, which is well-known for identifying undervalued
stocks that have fallen out of favor in the investing community due to
short-term headwinds. Nevertheless, due to the steep rally of the stock,
investors should realize that most of the easy money has probably been made on the
stock and hence they should wait for a more opportune entry point.
Business overview
ViacomCBS is an American multinational media conglomerate
based in New York City. It was formed in late 2019 with the merger of Viacom
and CBS. ViacomCBS has been facing a strong headwind in its flagship
businesses, such as MTV and Nickelodeon, which used to generate most of its
revenues. Streaming providers, such as Netflix (NFLX), have become so popular
that the traditional content providers like ViacomCBS have fallen out of favor.
Fortunately, ViacomCBS has begun to adjust to the streaming
era, and as a result, investors now view the stock more favorably. In the most
recent quarter, revenues decreased 9% and adjusted earnings per share fell 17%
due to the impact of the pandemic on advertising revenues and theatrical
revenue. However, ViacomCBS enjoyed 72% growth in the domestic subscriber count
of its streaming business and 56% growth in its streaming and digital video
revenues. Thanks to the strong momentum of this division, ViacomCBS is expected
to report just a 15% decrease in its earnings per share in the full year 2020,
with hopes for a return to growth in the future.
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