Source: ViacomCBS
The streaming service industry has been on an upward trend of late. Some companies in the space, such as Netflix ($NFLX), may be labeled as overvalued. Others, such as Walt Disney Co ($DIS), give an investor exposure to the industry while also providing steady growth. Looking further into the industry may help us find some hidden gems like ViacomCBS Inc. ($VIAC). This company was seeing continued growth in 2020 before becoming part of Archego’s margin call story. ViacomCBS is trying to recapture its momentum and drive its stock price back to the highs that it experienced in March 2021.
Who is ViacomCBS
Source: ViacomCBS
ViacomCBS is a media conglomerate company whose brands include Paramount, MTV, CBS, Comedy Central, Showtime, Bellator, and more. They work with some of Hollywood’s most pronounced stars, such as John Krasinski, Jamie Foxx, Stephen Colbert, and Trevor Noah. Paramount Plus is the newest addition to their streaming services, including some of the top sporting events in the world like the Master’s Tournament, UEFA Champions League, March Madness, and NFL. Besides Paramount Plus, they also own Pluto TV, giving users access to over 250 channels of TV and 1,000’s of on-demand movies and shows. The company has all the right pieces to friends and family together and drive revenue; let’s see how they’ve faired so far.
So they have amazing financial statements right
2020 was a bit of a shaky year for ViacomCBS, but they ended the year strongly. They grew their subscriber base to about 30 million. For Pluto TV, they grew monthly average users (MAUs) to 43 million. This growth was demonstrated by 13% year-over-year affiliate revenue and 4% year-over-year in revenue. With Paramount Plus being released in many countries as of March, these numbers are likely to increase and should even be supported in their following earnings report on May 6th.
Revenue for this company doesn’t follow any pattern. In 2017 revenue $13.69 billion, which then jumped to $27.25 billion in 2018. 2019 reported revenue of $27 billion, and 2020 reported $25.29 billion. 2017 was a challenging year for the company, and it was followed by a great year in 2018. Since then, the business has stayed stagnant in most ways. 2018 through 2020 showed gross income of $10.9 billion, $9.87 billion, then $9.9 billion, respectively. This is further supported by looking at EBITDA, which shows $17.72 billion, $17.36 billion, and $16.02 billion for 2018, 2019, and 2020.
Most of the financials are scattered, but the story really comes to life when looking into VIAC balance sheet. Cash went from $632 million in 2019 to $2.98 billion in 2020. Current assets rose by $40 billion, while current liabilities rose to $73 billion. Finally, total shareholder’s equity increased 29% from $13.21 billion to $15.37 billion from 2019 to 2020. So why did these numbers move so much between 2019 and 2020, and what does it mean for the company?
The significant movement in the financial is a result of the merger between CBS and Viacom. Both companies previously sold on the open market under different tickers. Many investors voiced their concerns with CBS saying that they were too concentrated in the television business. Now that the two have joined paths, they provide themselves with many different assets that they brought into the streaming business as part of Pluto TV and Paramount Plus. 2020 produced less than ideal circumstances for a business undergoing such a dramatic change in its fundamentals, but their upcoming projects prove to bring a lot of excitement. One significant risk when dealing with any company that is undergoing a merger is management. How will management handle the merger, and how will they utilize the assets provided. Since 2020 was the first full year that these two media giants were joined, we weren’t able to see the full scope of how this merger is going to be handled. On the other hand, we have seen the plans be laid out (Paramount Plus). CBS and Viacom have both been asset-heavy companies, so it’s true they have a long track record of utilizing these assets effectively, but we still need to see how the transition will play out in a post covid world.
The cash flow statement, balance sheet, and income statement are very jumpy, and many key metrics seem to be a bit all over the place. Viewing the merger shows why there were some inconsistencies in the financials. Though the statements haven’t shown much growth recently, the numbers are still solid. What’s most exciting about this business are the circumstances surrounding them that lead to the significant drop in their share price.
Why did Archegos drop VIAC from the moon
Source: Fuller Studio
ViacomCBS was on a straight path to the moon, but the rocket crashed when the pilot, Bill Hwang, was asked to meet a margin call. A margin call is when an investor’s account falls below a minimum threshold and is then asked to bring that account back above that threshold. Hwang was the owner of Archegos Capital Management which was basically set up as a personal hedge fund for Hwang’s money. He placed huge bets with massive amounts of leverage from many big banks such as Morgan Stanley and Credit Suisse. When some of the companies he was holding began to lose their value, Baidu in particular, pressure started to build up. Eventually, the accounts fell below the threshold, and these banks were forced to liquidate their positions. Since the positions were so big, they did this using block trades, which sent the underlying stocks plummeting. ViacomCBS was one of Hwang’s holdings and was the most negatively impacted stock. Days before the chaos caused by Archegos VIAC perfectly timed an announcement to issue shares of common stock. This news did not go well for ViacomCBS and sent the stock falling before ultimately hitting a bottom line of about $38. This is where the opportunity began to garner some attention. With little to no change in the fundamentals, VIAC fell nearly 62%.
Where does the story end?
Source: Nasdaq
The story of a company heavily invested in television turned streaming giant is still being written. Since the lows of $28 in March, the stock has gone up to $43.23 at the time of writing. These are very modest gains. There are a good amount of risks to take into account when investing in this business, but it’s hard to see a world where a company with the assets they have falls off. Archegos kicked them to the curb, and ViacombCBS will have to pick themselves back up modestly. If management can handle the merger of the two companies effectively, VIAC may be set for a bright feature.
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