ViacomCBS Q3 Earnings Beat Estimates; Forecasts 19 Million Streaming Subscribers by End-2020

ViacomCBS Inc, an American diversified multinational mass media conglomerate, reported better-than-expected profit and revenue in the third quarter and forecasts streaming subscriptions to touch 19 million by end-2020.

The mass media company said revenue from streaming and digital video rose more than 55% to $636 million in the third quarter. However, ViacomCBS’ overall advertisement revenue plunged 6%, better than the 27% decline seen in the second quarter.

ViacomCBS’ total revenue slumped 9% to $6.12 billion, but that was higher than the market expectations of $5.94 billion. Excluding items, the mass media company earned 91 cents per share, above Wall Street estimates of 80 cents.

“ViacomCBS reported a strong third quarter as revenue and EBITDA beat FactSet consensus expectations. While the linear networks and studio were once again negatively impacted by the pandemic, the streaming services continue to benefit from the users staying at home. We are maintaining our narrow moat rating for ViacomCBS and our $57 fair value estimate,” said Neil Macker, senior equity analyst at Morningstar.

But on Friday, along with its peers, ViacomCBS shares fell 6.35% to $29.30; the stock is down about 30% so far this year.

ViacomCBS Stock Price Forecast

Twelve equity analysts forecast the average price in 12 months at $31.00 with a high forecast of $36.00 and a low forecast of $26.00. The average price target represents a 5.80% increase from the last price of $29.30. From those 12 analysts, five rated “Buy”, seven rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $32 with a high of $48 under a bull-case scenario and $15 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the mass media company’s stock. Barclays raised ViacomCBS from an equal weight rating to an overweight rating and boosted their price target for the company to $36 from $22.

Several other analysts have also recently commented on the stock. BidaskClub raised to a buy rating from a hold rating. Benchmark boosted their price target to $35 from $24. At last, Bank of America cut ViacomCBS to a neutral rating from a buy and set a $25 price target in July.

We think it is good to buy at the current level and target at least $35 as 100-day Moving Average and 100-200-day MACD Oscillator signal a buying opportunity.

Analyst Comments

“We believe ViacomCBS can use its greater scale to secure continued distribution and avoid a major pricing reset or lost distribution. However, even in the context of healthier than expected distribution revenues, traditional TV ad exposure and the rising need for investment could pressure margins. We see significant opportunity for the CBS broadcast network to drive upside from distribution revenues, as it remains a relatively under-monetized asset in the media ecosystem,” said Benjamin Swinburne, equity analyst at Morgan Stanley.

“Digital advertising through Pluto and AMS may be the answer to driving healthy ad growth but visibility is low. We continue to view Paramount as a scarce, valuable asset that could generate significant strategic interest,” Swinburne added.

Upside and Downside Risks

Upside: 1) favourable distribution renewals or sub-trends supporting affiliate rev growth acceleration, 2) improved ratings, 3) healthy DTC sub growth, 4) improved film profitability – highlighted by Morgan Stanley.

Downside: 1) unfavourable renewal or dropped carriage pressures affiliate rev growth, 2) macro trends or soft rating trends weigh on ad growth, 3) DTC sub growth disappoints, 4) film underperformance pressures margins.

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