VIAC:NYSE

The views expressed below are those of Anchor Capital Advisors, LLC (“Anchor”) as of the date written and are subject to change at any time. They are based on our proprietary research of the stated company and the following is a summary of the primary factors that support our beliefs and rationale for investing in the company. Please see additional disclosures at the end of this publication.

VIAC:NYSE

MSCI ESG Rating: BBB

ViacomCBS is a diversified media and entertainment company. ViacomCBS Inc., owns a stable of broadcast (CBS), cable (Showtime, MTV, Nickelodeon, BET and Comedy Central) and Direct-to-consumer (DTC) assets (Paramount+, Showtime and Pluto TV).  CBS was founded in 1927, originally spun out Viacom in 1971; in turn, Viacom acquired CBS in 1999, separated in 2006 and remerged at the end of 2019.[1]

Investment Thesis

Formed via the reunion of Viacom and CBS, we believe ViacomCBS has a sustainable competitive advantage from the CBS broadcast network, a valuable portfolio of cable networks with worldwide carriage, production studios, and a now deeper content library.  Given our premise that the value of high-quality content will continue to increase, the television production studios are among the most attractive assets of the reunited firm.

Company’s key cable networks, Nickelodeon and MTV, benefit from strong brands.  The plan to focus on these two networks plus Nick Jr., BET, Comedy Central, and Paramount allows Viacom to streamline its business well.

Viacom recently launched its Direct-to-consumer streaming offering, Paramount+. Unlike the big 4 players (Netflix, Disney, Amazon Prime and Apple TV), Viacom is not a Tier1 asset. But Paramount+ subscription has started with well more than 30m DTC subscribers on Paramount+ and Showtime, by the end of April 2021. Pluto TV, which is the advertising based subscription platform, has more than 43m DTC subscribers.[2]

We believe Viacom will be a key contender in fast evolving DTC landscape.  It has a vast library of content and owns one of the few independent major production studios in Paramount. We expect its subscriber base to grow at healthy rates in the next few years. Like Disney, Viacom has relied on 3rd parties to distribute its content via movie theatres, TV stations and home videos. But the DTC business has allowed it to take control of its content and manage its own distribution.

Viacom owns Paramount, one of the only major studio that is still independent, and it could be a critical addition to a larger platform company. Stock has given up all the recent gains as one key hedge fund that was buying the stock went under.[3] We believe current valuation doesn’t fully reflect the potential for significant earnings growth of its DTC business and the scarcity value that Viacom’s content brings.

Confirmation through Research

For Q1 2021 fiscal quarter, Viacom’s topline improved by 14% to $7.4 billion as ad revenue was buoyed by sporting events and increased streaming usage.  TV Entertainment (CBS network, Paramount+, and other ventures) revenue grew 14% year over year as the increases in affiliate fee revenue (+11%), streaming revenue (+58%),  and advertising (+40%) offset the drop in content licensing (down 17%) due to the continued  COVID-19-related production delays in delivering content to third parties.[4]

Management expects streaming revenue to grow at a rate of 25% until 2024, DTC subscribers to grow to 75m from current 30m and Pluto TV subscribers to grow to 120m from 43m today.[5]  We expect streaming revenue to become about 30% of total revenue by 2024.

Variant Perception

We believe Viacom will be successful in its digital transformation, given its stable asset of high quality content.  We believe that recent derating in the stock is a great opportunity to invest in a company and the market does not fully appreciate this potential.