ViacomCBS (NASDAQ:VIAC) should be a wildly profitable investment.
It isn’t one.
The best trade on this stock over the last year was a short. If you borrowed shares to sell during its January and February run-up, you prospered after Archegos Capital collapsed.
Viacom shares started August 2 near the level they were at in January 2020. That’s a little over $41/share. This puts the market cap at $26.5 billion, the price to earnings multiple at a dirt cheap 9. It gives the 24 cent/share dividend a yield of 2.35%.
Why is this streaming giant still such a bargain?
The Family Share
ViacomCBS might be worth twice what it is save for chairman Shari Redstone. Like many media moguls, she has a dual-share structure on Viacom. It can’t be sold without her say-so.
Redstone inherited her power (after a bruising court battle) from her late father Sumner. He was the entrepreneur who put both Viacom and CBS together back in the 20th century. Despite it being publicly-traded, Viacom is a family company.
This is true for most players in the streaming wars. Comcast (NASDAQ:CMCSA) can’t be sold without the OK of CEO Brian Roberts. The same is true for Fox (NASDAQ:FOX) and the Murdochs. This extends into tech. Roku (NASDAQ:ROKU) can’t be sold without the agreement of CEO Anthony Wood. It’s why WarnerMedia (now part of Warner Discovery) keeps getting traded like a journeyman infielder – it’s the only thing available.
It’s true that Murdoch has made a deal, selling most of its entertainment assets to Disney. The assumption is that Redstone would sell, too – at her price. ViacomCBS itself rallied in June on rumors Comcast might bid for it. Nothing happened.
The fact is media moguls like Redstone like their power even more than their money. It’s all personal to them. Roberts and Redstone have talked, but both may be waiting for Discovery (NASDAQ:DISCA) to make a deal around Warner Discovery instead.
That’s going to take a while.
Why Buy It?
The only reason to even consider buying ViacomCBS stock is that it’s dirt cheap.
It could get even cheaper if Paramount Plus, its streaming service, succeeds in its global rollout. What took Netflix (NASDAQ:NFLX) and Amazon.Com (NASDAQ:AMZN) five years, and Walt Disney (NYSE:DIS) two years, may take Paramount just one year. That’s because the path is well-trod. The company hopes to have 65-75 million streaming subscribers in 2024.
It may already be there. ViacomCBS owns a streaming cable operation called Pluto, which has continued to grow since the company bought it in 2019. It’s up to about 50 million monthly active users. It means ViacomCBS has a global advertising platform.
This matters. As TV has become the Internet, ad dollars have begun flowing back to TV. The secret of Alphabet’s (NASDAQ:GOOG) blowout quarter was YouTube, an ad-based streaming service whose revenue is now close to that of Netflix. This trend is also the secret sauce at Roku. Why not at Paramount Plus, too?
The Bottom Line
Please ignore analysts who say ViacomCBS is about to be bought.
The only thing that might change this equation is if something happened to Shari Redstone. That would set off a battle for control among her kids and her niece Keryn, who is not a Shari Redstone fan.
Barring that new plot twist, you’re sitting on a valuable dividend and some growth prospects. Paramount Plus will be in 45 markets next year, and it is rearranging its executive ranks to compete. But even if everything works out, the value of ViacomCBS won’t grow faster than the business, which faces intense competition.
That’s why I say don’t hold your breath for big gains.
On the date of publication, Dana Blankenhorn held a long position in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.