Revenue Headwinds Keep These Analysts Sidelined On Viacom

Viacom, Inc. VIA VIAB reported another set of weak quarterly results. In order to reverse declining ad revenues at the core media networks division, Viacom would need to make substantial reinvestment in new programming and channels, Argus’s Joseph Bonner said in a report, while reiterating a Hold rating on the company.

Viacom reported its F3Q16 revenue at $3.1 billion, up 2 percent. The media networks division posted another 3 percent decline in revenue, with both advertising and domestic affiliate revenue declining. The filmed entertainment division’s revenue grew 30 percent, driven by higher theatrical receipts and license fees.

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Adjusted operating income came in at $769 million, down 29 percent. Adjusted net income from continuing operations attributable to Viacom fell to $419 million, or $1.05 per diluted share, from $591 million, or $1.47, in 3Q15.

Bonner reduced the EPS estimates for FY16 and FY17 from $4.45 to $4.00 and from $5.29 to $4.71, respectively.

Investment Thesis

Among CEO Philippe Dauman’s strategic objectives for Viacom is to invest in “original content on both the theatrical and television sides of the business as well as in digital and mobile distribution platforms,” Bonner mentioned.

The analyst believes Viacom would have to continue to make substantial reinvestment in new programming and channels in order to reverse declining advertising revenue and achieve even a modest growth in affiliate fee revenue. These investments would adversely impact the company’s margins.

“In our view, Viacom is missing a critical programming component in that it does not air sports programming, which tends to be viewed live and thus commands higher advertising rates,” Bonner stated. He added that the company’s Filmed Entertainment division is also facing pressures, and the division’s results are unlikely to improve until next summer at the earliest.

Full ratings data available on Benzinga Pro.