To stream or not to stream
Viacom, Inc. (NASDAQ:VIAB) is a leading American entertainment company focused primarily on cable television and cinema. Its media networks, which include Nickelodeon, MTV and BET, are the backbone of the company, accounting for over 70% of firm’s total revenue in the first half of fiscal 2013. The company’s film studio, Paramount Pictures, may have had some misses lately, but it has a solid content portfolio and a strong movie pipeline scheduled for the rest of fiscal 2013. Moreover, Paramount is about to launch its own animation studio, with forecasts still uncertain.
Nickelodeon, the firm’s cash cow, is immensely popular among kids, and despite increasing competition — not only from Disney, its main rival, but from emerging players such as The Hub — it has managed to increase its audience rating this year. The MTV network, a major player in the teen-TV category, has also been generating strong cash-flow margins. Yet, this network faces stronger competition and its audience appears to have been declining over the last five years.
The company has made highly lucrative deals with online-streaming companies (like Netflux and Hulu), which have improved its bottom line. However, it is uncertain how these deals may turn out for the company in the long run. Streaming companies can certainly become a threat to TV operators, therefore hurting Viacom, Inc. (NASDAQ:VIAB)’s affiliate fees (currently, about one-third of cable network revenues); or they could affect its own cable network audience ratings, and therefore its advertising revenue.
Viacom, Inc. (NASDAQ:VIAB) trades at $73, or 17.7 times its earnings, a slight discount to the industry average, and offers a 1.54% yield. Should you buy? Viacom is mainly a content-producing company. How the firm adapts to this changing environment should determine its long-term prospects.
Bottom line
In business, like in nature, those who adapt, survive. With the playing field being constantly shaken by technology, media companies need to stay smart. And the same should be said about investors. My take? I would go for Viacom, Inc. (NASDAQ:VIAB) for the short term, and watch Televisa closely in order to chip in if an attractive entry point becomes available.
Victor Selva has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article 3 Media Stocks Facing Changes originally appeared on Fool.com and is written by Victor Selva.
Victor is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
