ViacomCBS shares continued to take a beating on Thursday, down as much as 8% in early trading as MoffettNathanson media analyst Michael Nathanson slapped a “sell” rating on the stock.
ViacomCBS shares are down about 35% in the past three days, as the streaming frenzy that lifted its shares by more than 100% in the past three months seems to have reversed. ViacomCBS shares were trading at more than $100 each as recently as March 22, but the bottom seemed to fall out of the stock after the company priced a $3 billion stock offering aimed in part to raise money for its streaming efforts.
The offering was praised -- if half-heartedly -- by most analysts, who saw the issuance as a way for ViacomCBS to take advantage of its rising stock price. Prior to announcing the deal on March 23, ViacomCBS shares had risen 170% since Dec. 31. Even with the sharp declines of the past few days, the stock is still up 74% for the year.
ViacomCBS shares were priced as low as $64.52 each on March 25, down 8%, or $5.58 per share. The stock closed at $66.35, down 5.4%, or $3.75 per share, on Thursday.
But analysts had worried about the multiples assigned to the stock -- and to another streaming programmer Discovery Inc., which has seen a less sharp decline (20%) over the past two days. In several reports, analysts questioned the logic of valuing ViacomCBS and Discovery shares at more than 20 times earnings, compared to Google, a vastly larger company, which trades at 16 times.
On Thursday, Nathanson lowered his rating on ViacomCBS from “neutral” to “sell” and his 12-month price target on the stock from $67 each to $55 per share. In his note to clients he added that programmers that are shifting programming that once resided on their linear channels to streaming, run the risk of rapidly accelerating cord cutting. He pointed specifically to ViacomCBS and Comcast’s NBCUniversal, which will stream NFL games on their respective Paramount Plus and Peacock services simultaneously with their broadcast networks, beginning in 2023.
“In particular, those programmers -- again ViacomCBS and NBCU -- who appear to abandon their linear programming obligations by rapidly shifting premium content over to their DTC platforms run the risk of getting dropped by MVPDs and/or suffering lower annual price escalators, especially as it related to growth in retrans,” Nathanson wrote.
Nathanson added that smaller networks that don’t attract as high affiliate fees for their linear channels -- like AMC Networks and Discovery -- would gain from a shift to a direct-to-consumer model. In his report he estimated that Discovery receives about $6 per subscriber per month in linear network affiliate fees and $7 per month per customer for its Discovery Plus streaming service. AMC Networks, he estimated, receives about $2 per subscriber per month for its linear channels and $4 per month for its AMC Premiere streaming product.
But the exchange is different for ViacomCBS. According to Nathanson, ViacomCBS receives about $12 per subscriber per month for its linear channels line MTV, Comedy Central and Nickelodeon, and just $6 for Paramount Plus and $2 for its mostly ad-supported Pluto TV streaming offering. For companies that already get a healthy amount of revenue from traditional network affiliate fees, a sudden collapse in pay TV subscribers could be devastating.
Nathanson added that he sees similar difficulties for Fox, Turner and NBCU as more and more pay TV customers cut the traditional TV cord. The analyst already is predicting that traditional pay TV will lose about 15 million subscribers to cord cutters by 2024. But if those losses accelerate to 25 million, Nathanson estimates it would result in single-digit advertising and affiliate fee revenue declines for Disney’s and AMC Networks’ respective linear and streaming offerings, and double-digit losses for ViacomCBS, NBCU, Fox and Turner.
“This is especially true for ViacomCBS without a clear positive pivot in either the U.S. or internationally,” Nathanson wrote. “While we have increased worries about pressure on the company’s linear affiliate fee negotiations post the NFL announcement, we see a tough economic trade of shifting linear revenues to DTC, even before we factor in the lonely lower margin profile.”
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