ViacomCBS Stock Analysis


ViacomCBS Stock Analysis

Business Description:

  • Operates under 3 segments: TV Entertainment, Cable Networks, and Filmed Entertainment with respectively 42%, 50% and 10% of total revenues in 2020

  • 38% of revenues in 2020 came from Advertising, 36% from affiliate and 24% from content licensing

  • 10% of revenues came from Streaming, that is, 8.5% of TV Entertainment and 13% of Cable Networks

  • In 2020, they had 30 million global streaming subscriber and expects to reach 65-75 million in 2024

  • Streaming will be a new reportable business segment in 2021

  • Stock crashed by 60% in a few weeks after company announced share issuance to raise capital, which triggered a margin call for Archegos Capital


Catalysts:

  • Big potential for the streaming business, expected to grow by 30% per year till 2024

  • TV and filmed entertainment pretty stable businesses


Risks:

  • Streaming business is very competitive with Netflix, Disney+, Amazon Prime, Apple TV+ and others

  • Streaming business might be a cash flow drain in initial years

  • Further share dilutions

  • Cable Networks businesses are in decline


Financial Analysis:

  • Revenues of $25.2 Billion in FY20 down from $26.9 Billion in FY19

  • Operating income of $4.13 Billion in FY20, about the same as in FY19

  • Net loss of GBP 2.31 Billion in FY20 down from $3.17 billion in FY19

  • Free Cash flow of $1.89 Billion in FY20 vs $826 million for FY19 (down from usual because of one time tax expense)

  • Balance Sheet

  • Total assets: $52.6 Billion ; total liabilities: $36.6 Billion; book value: $15.6 Billion

  • Cash: $2.9 Billion, debts: $19.7 Billion, current assets: $13.7 Billion, current liabilities: $8.2 Billion

  • Shares outstanding increased by 67% during merger in 2019 and will increase by at least 6% with the new issuance


Valuations:

  • My personal Biases:

  • Was interested to look at company last year but missed the opportunity

  • More bullish on Disney and Netflix businesses

  • Assumptions for base case:

  • Streaming segment still considered as part of TV Entertainment and Cable Networks segments

  • Streaming parts of each of TV Entertainment and Cable Networks to grow by 30% annually till 2025

  • Non-Streaming parts to remain at 2020 levels

  • TV Entertainment Revenues to go back to 2019 levels in 2022

  • Ignore all corporate adjustments in revenues (they are negligible)

  • TV Entertainment operating margins fall to about 10% from 13% with extra expenses from streaming

  • Cable Network operating margin remains about 25%

  • About half consolidated operating income can be converted into FCF

  • FCF discounted at 15% for 5 years with terminal growth rate of 0%

ViacomCBS Stock Analysis
  • Use P/FCF as exit multiples for 2025 (range of 5-30 in last 5 years)

  • Bull case 10% more than in base case and bear case 20% less

  • 15% share dilution in base case, 10% in bull case and 20% in bear case

ViacomCBS Stock Analysis

Conclusion

  • Overvalued with intrinsic value of $18 billion and current market cap of $27 billion

  • Expected returns only 4% per year with 21% in base case scenario and a large downside in the worst case scenario

  • Might be attractive if stock price keeps falling

ViacomCBS Stock Analysis





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