ViacomCBS Stock is Paying for the Lost Decades of Sumner Redstone

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Sumner Redstone has died at 97. The mogul had spun a movie theater chain into ownership of Viacom, Paramount and then CBS over decades, with the motto “content is king.” Two decades ago, Viacom and CBS were dominant entertainment concerns in broadcasting, cable, and theaters. But that world has disappeared for ViacomCBS (NASDAQ:VIAC) stock.

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VIAC stock closed Aug. 13 at $26.69 per share. That’s down 34% on the year, a market capitalization of $16.6 billion. The once-dominant entertainment conglomerate is now a minnow in a sea of sharks.

The man who once famously said he’d “never die” ignored arguments over who would succeed him and froze assets in corporate amber. While the media and content world swirled amid a 21st century transformation, it was like watching Rip Van Winkle on Wall Street.

What Went Wrong for VIAC Stock?

Viacom and CBS still have a lot of assets.

Viacom’s roster includes the kids’ channel Nickelodeon, the teen channel MTV, the young adult channel Comedy Central, and the pay TV channel Showtime. But the rise of the internet made distribution of all that content a weakness. Only since Redstone’s succession was settled on behalf of his daughter Shari Redstone, and the Viacom-CBS merger was completed, did it get serious about streaming.

Unfortunately, the decades-long accumulation of entertainment assets left it burdened with debt. At the end of June, the company had long-term debt of $21.5 billion. It claimed $51.2 billion of assets, although the market cap is less than one-third that. To pay the debt, the company had just $1.23 billion in operating cash flow in 2019, although net income was $3.27 billion and earnings before income taxes was $4.5 billion. These are ad-supported networks, and there’s a pandemic.

The aftermath of the merger is still causing layoffs. But under CEO Bob Bakish and new CFO Naveen Chopra, hired from Amazon.Com (NASDAQ:AMZN), the company is making some moves.

The Comeback?

A return to relevance would be built on CBS All Access, first launched in 2014. It competes against Netflix (NASDAQ:NFLX), Amazon Prime, and new services from Walt Disney (NYSE:DIS) and Comcast (NASDAQ:CMCSA). It also competes with Alphabet’s (NASDAQ:GOOGL) YouTube and, in terms of viewers’ time, the whole world wide web.

Combined with Showtime, CBS All Access hopes to have 16 million subscribers by the end of 2020. It is adding content from its library as fast as it can. It has created new content in its Star Trek franchise, controlled by Paramount. It’s also adding live events, buying English-language coverage of the UEFA Champions League.

Stock analysts are piling into the name, calling it undervalued. It is … deeply undervalued. But its streaming services have one-tenth the subscribers of the market leaders, the reach of its cable and broadcast assets are fading and movie theaters remain closed.

Yet, Investors Still Wait

The most compelling reason to buy VIAC stock would be in the hope of a merger.

The company is currently worth less than 2% of Apple (NASDAQ:AAPL), now worth $1.93 trillion. Alphabet is also worth over $1 trillion, and has almost $120 billion in cash. The company’s valuation is less than one-tenth that of Netflix.

Even the smallest of the cloud czars, Facebook (NASDAQ:FB), now worth $740 billion, could buy ViacomCBS for cash without touching its $16 billion capital budget. That might make it an attractive diversification, except Facebook never pays for content.

But from a merger standpoint, ViacomCBS might as well be private. Shari Redstone, now 66, controls the voting shares, and has shown no interest in selling.

After waiting decades for one Redstone to fade out, those looking to cash in on this stock are now waiting for another one to do so.

Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN and AAPL.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.


Article printed from InvestorPlace Media, https://investorplace.com/2020/08/viac-stock-the-lost-decades-of-sumner-redstone/.

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