Wells Fargo Securities media analyst Steven Cahall raised his outlook on ViacomCBS Thursday from “Underweight” to “Equal Weight” and increased his 12-month price target on the stock to $30 per share from $19 per share, citing the programmers aggressive moves in the streaming video space.
ViacomCBS stock has been down considerably this year -- it was up about 1% in late trading Aug. 27 to $28.27 each, but is down more than 30% since January -- as declining subscribers and a sluggish ad market have hurt all programmers. In a note to clients, Cahall said there is opportunity in ViacomCBS’ plans to focus more on direct-to-consumer (DTC) streaming services like its Pluto TV, CBS All Access and Showtime, and centers its business on a House of Brands strategy.
“We’re not yet bullish on the stock but a more aggressive DTC strategy or merger activity would get us there,” Cahall wrote.
ViacomCBS CEO Bob Bakish unveiled the House of Brands initiative in February, vowing to expand its CBS All Access, Showtime and Pluto TV offerings by adding its own film and television assets via on-demand and live experiences, and would partner with traditional and new distributors both domestically and internationally.
Cahall broke down each initiative in his report, adding that he believes rebundling into a House of Brands could reduce churn and be more aggressive on pricing. He estimated a House of Brands streaming product could retail for $10-to-$15 per month, adding that a sub-$10 price point would likely attract more customers.
“...[I]f it’s closer to $15 then the launch may be less enticing for consumers,” Cahall wrote.
Adopting that strategy would mean ViacomCBS would have to forego content licensing revenue, which Cahall saw as a next step.
“To take DTC to the next level, we want to see [ViacomCBS] cease licensing marquee Paramount and Showtime content to competitors and stop feeding services like Netflix with originals,” Cahall wrote. “Our upgrade contemplates [ViacomCBS] using divestiture cash to wean itself from licensing.
But Cahall believes the focus on DTC could substantially boost revenue. He estimated DTC subscribers to CBS All Access, Showtime, Noggin and BET + would rise from 11.2 million in 2019 to 26.6 million by 2025. Total digital subscription revenue from those services would jump from $779 million in 2019 to $1.5 billion in 2025.
Ad-supported Pluto TV would see advertising revenue increase from $660 million in 2019 to $2.2 billion by 2025, according to Cahall’s estimates.
Cahall also believes that Viacom should investigate selling off some non-core assets, a move that some believe is more feasible after the death of its former chairman and largest shareholder Sumner Redstone. ViacomCBS vice chair Shari Redstone, according to some analysts (Cahall included) is believed to be more open to selling off assets than her late father.
The analyst added a combination with Discovery Inc., “is a deal that both companies should be considering.”
