Paramount Plus streaming plan bows to mixed criticism from Wall Street

Wall Street analyst Laura Martin of Needham Co. went so far as to say “Sell Netflix to buy ViacomCBS” after Wednesday’s marathon unveiling of ViacomCBS’s plan for growth in the streaming arena with the launch of Paramount Plus on March 4. .

But Todd Juenger of Sanford Bernstein Co. won’t agree to any of that, setting his target price for ViacomCBS stock at $ 23 for a share that closed Wednesday at $ 65.63. The ViacomCBS veteran bear was unimpressed with the company’s efforts to distinguish Paramount Plus (a rebrand of CBS All Access) from competition in the US by emphasizing that it will deliver live news, sports, streaming. Linear CBS network live and “a mountain” Of entertainment on demand.

“The sports offer is too limited for satisfy sports fans. News belongs to the Internet. (International version of Paramount Plus) has no sports or news. general entertainment is undifferentiated, late and lacks the global scale of competitive offerings, ”Juenger wrote.

He cited ViacomCBS’s long-term debt burden and the promise of further erosion in its legacy TV operations as obstacles to establishing a large footprint in the next iteration of TV through direct-to-consumer streaming. ViacomCBS’s long-term debt stands at $ 19.7 billion, which is a high figure for a company that reported adjusted operating income of $ 5.1 billion and free cash flow of $ 1.9 billion. million for the entire year 2020.

Other analysts had more mixed reactions to the nearly three-and-a-half-hour presentation, led by ViacomCBS President and CEO Bob Bakish, in which ViacomCBS top brass detailed plans to deliver a wave of new content, largely part rooted in existing IP, in an effort to grow the company’s global direct-to-consumer subscriber base from 65 million to 75 million by 2024.

“We I think Paramount Plus is still a true competitor in the broadcast wars, but it is yet to determine if it becomes a winner, ”wrote Alexia Quadrani, an analyst at JPMorgan. “In the short term, we would not be surprised to see stocks continue to be rewarded for aggressive spending plans within a defined framework transmission strategy, although our enthusiasm is somewhat tempered by a significant progress ahead of this investor event. “

As Quadrani noted, ViacomCBS shares have had a great run this year, in part because investors were waiting for the February 24 presentation, which took place after the market closed.

On Thursday, ViacomCBS shares opened higher by almost $ 2. But the stock could not withstand the significant market recession that saw the Dow close 560 points while the NASDAQ, where ViacomCBS trades, plunged 478.5 points in the day. ViacomCBS shares fell 4.7% as of Thursday’s close to $ 62.50. That was slightly more pronounced than the 2% to 3% drops recorded during the day by most of its media peers. ViacomCBS shares are up 68% so far this year.

In his research note issued Thursday, Martin explained that he sees more advantages in ViacomCBS shares than in Netflix in the short term, because ViacomCBS has more room to grow. The stock took a big hit when Viacom and CBS Corp. joined in a merger in December 2019. Martin said the company is undervalued even with a market capitalization of $ 39 billion (as of Thursday). She argued that the company’s streaming businesses, primarily CBS All Access and Pluto TV, are already worth more than the company’s market capitalization.

“We recommend the purchase of (ViacomCBS) because we believe the value of its transmission assets is important and growing, and it will become an increasing focus now that ViacomCBS will split its transmission revenue separately,” he wrote.

Guggenheim Partners’ Michael Morris also gave a vote of confidence, raising his stock price target to $ 74 from $ 50. It echoed the widespread sentiment among media business watchers that further consolidation is coming for legacy media companies that carry weight, but aren’t as gigantic as Disney, Comcast, AT&T or Netflix.

“We view ViacomCBS, Discovery and Fox as generally similar, high-quality companies facing the same challenge of navigating the consumer shift from linear packets to streaming platforms,” ​​Morris wrote. “We expect investors to consider long-term risks and value creation opportunities similarly across all three businesses.”

Paramount Plus’s list of content, which includes a new reality TV series that will premiere every month in 2021, was “very impressive,” wrote BMO Capital Markets analyst Dan Salmon. But the media conglomerate’s focus on news and sports content “does not align with a long-term value pricing strategy,” he said.

“We are positive about reality, kids, and the expanding universe of Star Trek as differentiators, minus news and sports,” Salmon wrote.

Furthermore, the scope of ViacomCBS ‘global broadcasting ambitions remains “unclear at this stage,” Salmon wrote, noting that the company provided only limited details on its strategy for local language productions.

MoffettNathanson analyst Robert Fishman is also still in a way to show me. The presentation’s focus on bolstering Paramount Plus with new and high-voltage library content raised questions about why Showtime will remain a standalone premium content service rather than joining the new streamer.

“While we believe that ViacomCBS has enough exclusive content (scripted + sports) to keep growing Paramount Plus in the USA and benefit from the secular shift in advertising moving to AVOD with Pluto, we are still cautious about the impact of Showtime OTT growth on linear Showtime, as well as the expected continued decline in the core linear network for its remaining portfolio. “

Todd Spangler contributed to this report

(In the photo: Bob Bakish, CEO of ViacomCBS)

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