We may be on the verge of heavy deal-making among media stocks. AT&T’s proposed spin-off of its WarnerMedia unit, via a reverse merger with Discovery Networks (NASDAQ:DISCA, NASDAQ:DISCB), could be largely about the telecom giant unwinding a failed diversification effort.
But, it could signal something else that’s brewing among the more “old school” media companies: consolidation is the path to survival. In order to prevent big tech companies from making more inroads into their business, bulking up via mergers and acquisitions (M&A) deals may be key.
Sure, today’s media conglomerates are already the product of decades of deal making. Yet, that doesn’t mean it can’t consolidate further. As the media industry shifts more to streaming, the idiom “content is king” may no longer apply. Instead, it’s quickly becoming “who has the most content is king.”
And, that’s just for the already large media concerns. For smaller, up-and-coming names, consolidation may be the key to scale up to profitability. There are several publicly-traded names that stand to benefit from such a move.
So, what opportunities could come about from this possible M&A wave? These seven media stocks, a combination of both large and small entities, may be some of the next to do a deal:
- AMC Networks (NASDAQ:AMCX)
- Cinedigm (NASDAQ:CIDM)
- Chicken Soup For The Soul (NASDAQ:CSSE)
- Fox Corporation (NASDAQ:FOX)
- Lionsgate (NYSE:LGF.A, NYSE:LGF.B)
- Tegna Inc (NYSE:TGNA)
- ViacomCBS (NASDAQ:VIAC)
Media Stocks: AMC Networks (AMCX)
So far in 2021, AMCX stock has benefited from a tremendous boost, thanks to its “meme stock” status. One of many heavily shorted names targeted by the Reddit trading community, the stock’s epic rallies in February and March can be chalked up to short squeezing.
But, since then, shares have pulled back substantially. As the “meme stock” trend has faded, the stock has tumbled from highs about $80 per share, to around $51 per share as of this writing. But, with the specter of consolidation, this mid-sized media giant (parent company of cable networks like AMC, IFC and We TV), could see a boost.
How? Two ways. First, as a takeover target. Much has been said for its potential to get acquired by a larger media company, as a bolt-on acquisition. So far it hasn’t happened. Instead, Wall Street has soured on the company, as it struggles to adapt to “cord-cutting” and the rise of streaming. The second way, however, relates to this problem. Instead of trying to find a buyer for its business, why doesn’t AMC play the role of acquirer itself?
Namely, by acquiring one of the smaller streaming companies trying to make their bones right now. It may be pricey upfront, given several of these names sport rich valuations. But, in the long-term, it may be the best way to bolster its existing streaming endeavors. It may be recovering from its “meme stock” hangover. But, consider AMCX stock one of the top media stocks that could benefit greatly from possible future M&A activity.
Cinedigm is another name that’s seen wild moves thanks to speculative enthusiasm from the Reddit set. But, as I’ve said before, the most exciting thing about it could be its potential to become a major name in streaming down the road.
Granted, it’s still in its early stages. The company has launched scores of over-the-top (OTT) streaming networks. This is further helped by its acquisitions of content libraries. Much of this is reflected in its share price. It may be low in absolute terms ($1.29 per share), but based on valuation metrics, it’s anything but “cheap.”
Like AMCX stock, CIDM stock could see a boost, either from being an acquiree or from being an acquirer. In fact, a name like AMC could find potential adding its operations into its own fold. Other companies that may want to do a deal with the company include Chicken Soup For The Soul (more below) and Genius Brands (NASDAQ:GNUS).
In terms of being an acquirer, Cinedigm’s pool of targets may be limited by its small size. Its market capitalization is currently just $228 million. But, with many privately-held companies in either streaming and/or content licensing that remain independent, this up-and-coming media conglomerate (led by entertainment industry vet Chris McGurk) may be able to continue on its path of scaling up via M&A activity.
Media Stocks: Chicken Soup For The Soul (CSSE)
Don’t let the name fool you. Chicken Soup For The Soul may be best known for its popular series of inspirational books first published in the 1990s. But this diversified media company’s focus now is on its budding content streaming operations.
A few years back, the company became partners with Sony (NYSE:SONY), acquiring a stake in that company’s Crackle streaming service. Late last year, it acquired the remainder from the electronics and media giant, in exchange for $40 million in preferred stock.
Since then, CSSE stock has seen a rapid move upward, moving from under $20 per share at the end of December, to around $40 per share today. As a result, shares have become richly-priced. At today’s prices, it sports around a $530 million market capitalization, and an enterprise value of around $566 million. This may look reasonable compared to its projected sales this year and the next ($112.3 million and $148.6 million, respectively). But, it’s still operating deep in the red (expected losses of $1.93 per share in 2021).
Even so, buying in now may be a worthwhile move. Why? If the company’s efforts help turn Crackle (which Sony bailed on) into a success, it may make the company a solid target for the aforementioned media giants looking to bulk up their streaming operations. Or, the company could too play the role of acquirer, perhaps gobbling up some of the smaller names mentioned above.
Fox Corporation (FOX)
A collection of “old media” assets that were not included in the mega-merger between 21st Century Fox and Disney (NYSE:DIS), FOX stock has seen decent performance, considering so many have written it off. But, it’s not as if the company, still under the control of media mogul Rupert Murdoch and his family, hasn’t tried to adapt to the changing media landscape.
For starters, its purchase of Tubi, an app-supported streaming app similar to ViacomCBS’s PlutoTV, in hindsight may have been a shrewd move. Along with its expansion into sports betting (via the launching of its FoxBet app, as well as through the purchase of online sports media properties), it’s smartly investing the cash flows from its mature television station and cable networks (Fox News) businesses into areas that offer long-term growth potential.
This could pave the way for an eventual divestiture of its Fox Broadcasting unit. Perhaps reverse-merging it into one of the major TV station owners, like Sinclair Broadcasting (NASDAQ:SBGI). After that, the company could continue morphing into a streaming/sports media and wagering play.
Admittedly, it may not play out exactly like this. But, it may be a game plan that could move the needle for FOX stock, which has seen a moderate pop (from $30 per share to around $36 per share) so far this year.
Media Stocks: Lionsgate (LGF.A, LGF.B)
Lionsgate, which owns the film studio of the same name, along with premium cable network Starz, is another media company could be an acquirer or an acquiree sometime in the immediate future. In fact, the company recently made a failed attempted to buy ViacomCBS’s Showtime division.
It may not have had much luck as a would-be acquirer. But in the wake of the WarnerMedia/Discovery deal, as well as the recent news of Amazon (NASDAQ:AMZN) being in talks to buy MGM, this Hollywood “mini-major” studio with an extensive content library could be a tempting target as well.
A name like ViacomCBS, which is feeling pressure to consolidate further (more below) may be a possible buyer of the company. So, too, could one of the big tech companies. Amazon’s interest in MGM is primarily for its own extensive content library. If that deal doesn’t happen, this may be a satisfactory consolation prize. Another possible big tech buyer? Apple (NASDAQ:AAPL), which may in the market for a content library.
Trading near its 52-week highs at around $18.25 per share, its potential as a takeover target may be more than reflected in the price of LGF stock. You may not want to chase it now. But, if shares pullback, this smaller media stock may be an interesting opportunity.
In recent years, Tegna has been seen as a name that could get acquired by an even larger broadcast television station owner. In fact, just before the COVID-19 pandemic, the company was set to be acquired by Gray Television (NYSE:GTN).
However, in the wake of the virus, Gray withdrew the bid. That, along with cratering demand for TV ad space in the wake of the pandemic, pushed TGNA stock from around $17 per share, to prices as low as $10 per share. Yet, over the past twelve months, shares have more than recovered, and trade for around $19.42 per share today.
The reason? To some extent, the recovery of the TV ad market. But also, a proxy contest launched by hedge fund Standard General helped to spur speculation the company would once again go on the auction block. However, with Tegna’s management prevailing in the fight, shares have pulled back, given it decreases the odds the company pursues “strategic alternatives” (i.e. M&A) anytime soon.
This recent proxy fight isn’t Standard General’s first attempt to get its slate on the board. It tried to do so as well in 2020. Will they try again in 2022? Granted, with the stock’s big rise over the past year, they may find taking profit now to be the wisest move. But given the activist investor seemed confident they could help realize substantial shareholder value if they obtained a voice on the board, they may decide to try again at next year’s director election.
Media Stocks: ViacomCBS (VIAC)
A few months back, VIAC stock was on a tear. Between January and March, shares surged from around $35 per share, to more than $100 per share. But, caught up in the Archegos Capital unwinding, the stock collapsed. Since then, it’s struggled to recover, as it changes hands for around $42 per share today.
But, while investors are still souring on it, somewhat due to fears that the aforementioned WarnerMedia/Discovery merger will leave it at a competitive disadvantage, now may be the time to buy. Why? Two reasons. First, while ViacomCBS stock has been stuck in neutral, the underlying company has had big success with its streaming strategy.
Its Paramount+ streaming service continues to add scores of new subscribers. Not only that, its ad-supported streaming service, PlutoTV, continues to see solid growth as well. With the stock’s low valuation (forward price-to-earnings, or P/E, ratio of 10.59x), continued better-than-expected results could help the stock see a boost from multiple expansion.
Second, with the media landscape fast consolidating, ViacomCBS may make a great takeover target. At least, that’s what analysts like Bank Of America’s (NYSE:BAC) Jessica Reif Ehrlich have recently argued. The analyst sees the company possibly getting acquired by either a big media company like Comcast (NASDAQ:CMCSA), the parent company of NBCUniversal. Or, a more tech-based name like Apple or Netflix (NASDAQ:NFLX). This could mean shares wind up rising towards the analyst’s recent raised price target of $53 per share.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.