ViacomCBS stock has soared lately on management's bullish streaming targets. Wall Street remains split over the company's future.
Valerie Macon/AFP via Getty ImagesParamount+ launches on Thursday as the conversation on Wall Street over the future of ViacomCBS in a streaming-dominated world continues. Soaring shares add to the intensity of that debate.
ViacomCBS (ticker: VIAC) is calling Paramount+ a brand-new service, but it’s more of an expansion and rename of its CBS All Access platform. Paramount+ is one part of the company’s growing streaming focus, which also includes the free, ad-supported Pluto TV and paid Showtime and BET+ services. Paramount+ will be offered in two tiers: a $9.99 ad-free option and a $4.99-per-month ad-supported option that won’t be available until June.
Both tiers will feature live news and sports, including the National Football League, from CBSN and CBS Sports, plus a library of on-demand content from CBS, Comedy Central, MTV, Nickelodeon, BET, and ViacomCBS’ other networks, as well as movies from Paramount. The premium tier will have additional live sports and news that includes local CBS channels. ViacomCBS is also planning a roster of original, streaming-only content, including series and films from franchises such as Star Trek and SpongeBob.
Accordingly, ViacomCBS plans to up its streaming content investment in the coming years from about $1 billion annually today to at least $5 billion annually by 2024.
At a streaming strategy-focused investor day following ViacomCBS’ fourth-quarter results last Wednesday, management made it clear that they’re serious about streaming and that they believe investors should view the company as more of a Netflix (NFLX) than a legacy media outfit.
ViacomCBS chairwoman Shari Redstone didn’t hold back in her opening remarks, which came after a clip of CEO Bob Bakish parachuting down to Paramount Studios’ Hollywood lot in a Mission: Impossible-esque scene.
“If your impression of ViacomCBS is still rooted in what we were three, or five, or 10 years ago, I invite you to take a fresh look,” said Redstone. “This is not your father’s Viacom, and it’s not my father’s either. This is a ViacomCBS that is being reimagined for a new kind of marketplace and a new kind of consumer.”
Investors have certainly taken a fresh look at Viacom stock recently, bidding it up 93% since the start of the year and more than 500% since its bottom last March.
“You know us as a value stock,” added Redstone. “But what we are going to show you today is that inside our value company is a powerful engine for growth.”
ViacomCBS’ streaming revenues grew by 49% in 2020, to about $2.6 billion, including about $1.4 billion from advertising and $1.1 billion from subscriptions. The company said it exited 2020 at a streaming revenue run rate of $3.6 billion after a 72% year-over-year increase in the fourth quarter. Management’s goal is to reach at least $7 billion in annual streaming revenue by 2024.
The streaming-only figures are thanks to a new reporting structure for ViacomCBS that has been published for the past two years along with the company’s fourth-quarter results. Separating its streaming revenues more explicitly could shift more investor attention to that growth area of the company’s portfolio and away from its more structurally challenged cable network and movie theater segments.
“Because VIAC will break out its streaming revs going forward, we believe its streaming value upside will become unmasked during 2021, which should drive upside to VIAC’s valuation multiples,” wrote Needham analyst Laura Martin in a report last week. She has a Buy rating and a Street-high $80 price target on ViacomCBS shares, which she lifted from $55 before the streaming investor day.
The stock closed at about $71 on Wednesday.
ViacomCBS management expects to have 65 million to 75 million streaming subscribers globally in 2024, up from just under 30 million at the end of 2020. It also forecasts 100 million to 120 million monthly active users for Pluto, compared with 43 million last year.
That would represent significant growth from ViacomCBS’ position today but still pales in comparison with the streaming giants’ ambitions. Walt Disney’s (DIS) guidance is for up to 350 million subscribers on its streaming services in its fiscal 2024 when it expects to be spending about $15 billion a year on content. Netflix already had 204 million subscribers at the end of 2020 and could add between 20 million and 30 million more a year through 2024. Its content spending could exceed $20 billion that year.
Disney’s and Netflix’s services seem to be more globally focused, explaining some of the differences in scale. ViacomCBS plans to launch Paramount+ in Canada, Latin America, Australia, and a handful of European countries in 2021, followed by additional unspecified countries by 2024.
Analysts who see success in streaming as a game of scale are much less bullish on ViacomCBS’ prospects and worry about the nearer-term hit to free cash flow from the company’s expanded streaming investment.
“We believe the Paramount+ consumer proposition is weak,” wrote Bernstein analyst Todd Juenger last week. “[The streaming service’s] sports offering is too narrow to satisfy sports fans. News belongs on the Internet. International has neither sports nor news. General entertainment is non-differentiated, late, and lacks the global scale of competitive offerings. Post-pandemic, we expect a shakeout among streaming services at the consumer level. We’ll take the ‘under’ on the Paramount+ (and Showtime) guidance.”
Juenger rates ViacomCBS stock at the equivalent of Sell with a $23 price target—the lowest on the Street.
Overall, 46% of analysts rate ViacomCBS shares at Hold, 35% at Sell, and 19% at Buy, according to FactSet. Their average price target is about $50, or some 30% below the stock’s recent levels.
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