Analysts React To Viacom's $340M Acquisition Of Pluto TV

Multinational mass media conglomerate Viacom, Inc. VIAB spent $340 million to acquire Pluto TV in a deal that represents a "relatively modest bet" for the company, according to Morgan Stanley.

The Analysts 

• Morgan Stanley's Benjamin Swinburne maintains an Equal-weight rating on Viacom with an unchanged $34 price target.
• Imperial Capital's David Miller maintains at Outperform, unchanged $37 price target.

Morgan Stanley: 3 Potential Benefits

Pluto TV's business model of offering users a linear channel lineup with additional on-demand content is its way of looking to "reinvent" the traditional TV model, but in an over-the-top form, Swinburne said in a Monday note.

Pluto TV has seen success since being founded in 2013 with 12 million active accounts and distribution partnerships with Samsung and Vizio smart TVs.

Viacom likely paid around two to three times Pluto TV's forward revenue, and the more established media operator can benefit from the following, the analyst said:

• Using its existing scale in advanced advertising.
• Leveraging its global distribution network and partnerships.
• Bringing Viacom's branded OTT channels to market at a faster pace.

Viacom's ultimate success in acquiring Pluto TV — which is still in its early stages of monetization — will be based on management's execution on revenue and distribution synergies, along with Pluto TV's ability to grow its user base despite growing competition, Swinburne said. 

In financial terms, the deal will likely generate $150 million of annualized ad revenue for Viacom as of the back half of 2019 while contributing a modest loss, according to Morgan Stanley. 

Imperial Capital: Mildly Dilutive For 'Junior Hulu'

Pluto TV is "somewhat of a junior Hulu" due to its wide-ranging content across different themes, with a streaming on-demand component, Miller said in a Jan. 24 note.

The biggest takeaway from Viacom's acquisition is that it now has a direct distribution model after taking criticism for not developing a streaming platform of its own, the analyst said. 

Paramount will be able to prioritize its own produced TV series on Pluto TV, or it can use its new platform as a negotiating tactic with other streaming platforms, including Netflix, Inc. NFLX, Miller said.

For example, Paramount's "13 Reasons Why" series could find a new home at its own platform if negotiations with Netflix fail to achieve the highest possible value, according to Imperial. 

Price Action

Viacon shares were up 0.48 percent at $29.13 at the close Monday. 

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Photo courtesy of Pluto TV.