ViacomCBS Strong Earnings Offset By High Investments, Analyst Says

Although ViacomCBS Inc VIAC reported strong first-quarter results backed by solid streaming performance, its bottom-line will be under pressure due to high investments, according to BofA Securities.

The ViacomCBS Analyst: Jessica Reif Ehrlich reiterated an Underperform rating for ViacomCBS, while keeping the price target unchanged at $38.

The ViacomCBS Thesis: The company reported global streaming and digital video revenue growth of +65%, with 36 million subscribers and Pluto MAUs (monthly average users) of 50 million, Reif Ehrlich said in the note.

However, ViacomCBS recorded higher DTC (direct to consumer) expenses, including more than $2 billion in streaming content costs, with investments in more originals, sports rights, international launches and market expansion as well as preservation of in-house content, she added.

“Heading into the 2Q, we expect streaming revenue to accelerate (as new Paramount+ subs convert from 1Q free trials), alongside double-digit adv. growth (aided by NCAA Final Four and Championship games) with a modest acceleration in affiliate trends,” the analyst wrote.

“Notably, the bulk of DTC investments will occur in CY22E and beyond, leading to modest growth in total content expenses (from a ~$15bn base) over the next few years,” she further added.

VIAC Price Action: Shares of ViacomCBS had risen by 3.85% to $39.62 at the time of publication Friday.

(Photo: ViacomCBS)