On May 22, 2014, we issued an updated research report on Viacom Inc. VIAB. The company reported better year-over-year performance based on strong advertisement and affiliate fee revenues. However, lack of popular movie releases during the quarter has somewhat marred the overall financial performance of the company.
Viacom has delivered positive earnings surprises in three of the four quarters last year, with an average beat of 3.58%. The company reported mixed financial results for the second quarter of fiscal 2014 with the bottom line beating the Zacks Consensus Estimate but the top line missing the same.
Viacom largely benefits from its agreement to disribute digital content to online video streaming companies, such as Netflix Inc. NFLX and Hulu. These businesses generate very high margins, of around 75%, while facilitating the company to significantly improve its bottom line. Viacom also offers video-on-demand websites to AT&T, Inc.'s T U-Verse customers and Time Warner Cable TWC.
Moreover, Viacom is generates strong free cash flow, enabling the company to maximize shareholders' wealth through dividend payments and significant share repurchases. Adding to the positives, Viacom's recent decision to buy Channel 5 media company may bolster top line growth going forward. We also remain confident of a turnaround in the weak movie business with the release of Transformers: Age of Extinction in the middle of June this year.
On the flipside, the cable TV industry in the U.S. is highly matured and saturated. Viacom's flagship cable channels are already well distributed and there is limited scope for revenue generation through the enlargement of distribution channel.
Viacom's digital content distribution business has been performing extremely well. Moreover, online video streaming companies pose a major threat to cable TV operators who may not be able to pay higher affiliate fees as Viacom's contents can be viewed online. Thus, it may result in drop in revenue.
Currently, Viacom has a Zacks Rank #3 (Hold).
A better-ranked stock worth considering in this sector is The Walt Disney Co. DIS with a Zacks Rank #2 (Buy).
DISNEY WALT DIS: Free Stock Analysis Report
NETFLIX INC NFLX: Free Stock Analysis Report
AT&T INC T: Free Stock Analysis Report
TIME WARNER CAB TWC: Free Stock Analysis Report
VIACOM INC-B VIAB: Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.