ViacomCBS Inc. (VIAC) is trading lower by more than 11% in Tuesday’s pre-market after posting a Q4 2021 profit of $0.26 per-share, missing estimates by $0.19. Revenue beat expectations by more than $500 million, rising 16.4% year-over-year to $8.0 billion. Paramount+ and Showtime streaming services added 9.4 million subscribers, reaching a global total of 56 million. New subs beat 6.4 million estimates by a wide margin. The free Pluto service posted strong growth as well, adding 10 million new users.
Investments Overpower Revenue Growth
The cost to obtain subscribers rose, similar to headwinds faced by rivals Netflix Inc. (NFLX) and Walt Disney Co. (DIS), who are also chasing a dwindling pool of potential customers. The company failed to disclose bottom line results for its streaming business, leading analysts to conclude the divisions are still losing money. That isn’t good news because VIAC profits remain dependent on stagnating legacy media that includes Nickelodeon, MTV, and Comedy Central.
KeyBanc Capital Markets analyst Brandon Nispel upgraded the stock to ‘Sector Weight’ ahead of the report, simultaneously sounding the alarm about tough market conditions. As he notes “VIAC fundamentals going forward are poor and expectations are high for EBITDA/FCF, both of which are likely to decline in 2022 given ramping streaming investment. However, we worry that accelerating subscriber growth and breakdown of profitability between legacy Media and DTC could lead to improving sentiment and overenthusiasm could ensue à la 2021.”
Wall Street and Technical Outlook
Wall Street consensus stands at a modest ‘Hold’ rating, based upon 10 ‘Buy’, 1 ‘Overweight’, 13 ‘Hold’, 0 ‘Underweight’, and 3 ‘Sell’ recommendations. Price targets currently range from a low of $32 to a Street-high $67 while the stock is set to open Tuesday’s session on top of the low target. This dismal placement highlights investor dissatisfaction with ViacomCBS’s progress-to-date, fueled by the 69% decline since the stock topped out at 102 in March 2021.
ViacomCBS was created in December 2019 by the merger of Viacom and CBS, keeping the old CBS chart going forward. It rose more than 60 points into March 2021, and turned tail, crashing 60% in just four sessions. Aggressive sellers returned in October after six months of sideways action, breaking support in the upper 30s. A test at the 200-day moving average has failed twice, giving way to a selling spiral that could now break the 2021 lows in the upper 20s.
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Disclosure: the author held no positions in aforementioned securities at the time of publication.