I was amazed as anyone by the last year’s run-up in ViacomCBS (NASDAQ:VIAC) stock. It made no sense to me. ViacomCBS was a collection of broadcast and cable assets lost in a streaming world. Even after those assets were rolled-up into a service called Paramount+, I questioned the VIAC stock investment thesis.
Now the stock has fallen, hard. The winding-down of Archegos Capital, which apparently had a huge position in ViacomCBS stock, cost the shares half their value. Reporters and bargain hunters are poring through the rubble, asking what the real value of the company is.
VIAC Stock by the Numbers
Entertainment can be a good business.
In 2020, ViacomCBS earned $2.42 billion, $3.92 per share fully diluted, on revenue of $25.28 billion. The Sumner Redstone mishugas finally ended with the death of the man who had controlled both Viacom and CBS in August. Daughter Shari Redstone was in control and was one of Time’s “100 Most Influential People” because, media. Bob Bakish runs the combined company.
The stock opened for trade March 31 at about $47 per share. That’s a market cap of about $30 billion. The affordable 24 cent per share dividend yields 2.06%. On the surface, it’s a nice company at a good price.
Blindsided by Streaming
The problem is that streaming pulled the rug out from under the company. It is destroying distribution channels.
The Paramount movie division couldn’t get its product into theaters. It sold its first big hit of 2021, Coming to America 2, to Amazon (NASDAQ:AMZN). CBS remains the top-rated broadcast network but that makes it the best house in a rundown neighborhood. Its top-rated shows have 10 million viewers, which on Netflix (NASDAQ:NFLX) would mean quick cancellation.
The Viacom cable channels look equally shabby. If you remember MTV, your hair is silver. The top stars from Nickelodeon are now middle-aged. Comedy Central has one relevant show and is looking to cut production costs.
The response was to bundle it all together in Paramount+, which claimed 19.2 million subscribers at launch. The company also owns the Showtime Pay TV network and a “skinny bundle” cable service called Pluto.
But Netflix, Amazon, and Walt Disney’s (NYSE:DIS) Disney+ are miles ahead. Since Paramount+ is banking heavily on the Star Trek franchise, let’s call it light years.
Time to Sell?
Getting into the cloud is easier today than when Netflix did it. Being relevant in the cloud is harder.
There’s one big name that’s not on the map. That’s Apple (NASDAQ:AAPL). The world’s most valuable company claims 30 million viewers for its Apple+ offering, but 62% are on a free trial. It has some good shows, but it lacks the heft needed to compete.
ViacomCBS could provide that heft. For a $2 billion company, $30 billion is pocket change. If Apple is serious about TV, buying ViacomCBS, in whole or in part, looks like an obvious move. Time to call Tim Cook.
Bottom Line on VIAC Stock
ViacomCBS isn’t about to collapse. Millions of people are cutting their cable cord, but many are doing it in favor of skinny bundles like Pluto.
Instead of paying $150 a month to Comcast (NASDAQ:CMCSA) or AT&T (NYSE:T) for instance, I keep my internet service, add something like Pluto for $65 per month, and have $85 a month I can spend on other streams. For ViacomCBS, this means they can still get viewers.
But the clock is ticking. ViacomCBS needs work, and work costs money. Apple has money. For that matter, Facebook (NASDAQ:FB) does too. Shari Redstone is 66. Would she rather own ViacomCBS shares in retirement, or Apple shares? Maybe Facebook?
That hope is the best reason to buy VIAC stock.
At the time of publication, Dana Blankenhorn directly owned shares in AAPL, T, FB and AMZN.
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. Write him at firstname.lastname@example.org, tweet him at @danablankenhorn, or subscribe to his Substack newsletter.