CBS (NYSE:CBS) reported another impressive quarter marked by continued revenue growth and notable margin enhancement as expected. (see CBS Earnings Tuesday Will Show Firmer Advertising Outlook) With a consistent focus on bringing the best content to viewers, leveraging content for licensing and pushing for re-transmission fee, CBS has unlocked significant value over the past couple of years.
The stock has been on a phenomenal run and is currently trading at a slight premium to our price estimate. We are in the process of reviewing our estimates and will be updating our pricing model shortly. CBS has been crown jewel of the media industry which is populated by other giants such as Time Warner (NYSE:TWX), Viacom (NASDAQ:VIA) and News Corp (NASDAQ:NWS). While current results have been good, future growth looks healthy as well.
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High Margin Focus
Re-transmission fees for the broadcasting content, syndication of currently available content and licensing deals with streaming companies, all add high margin sources of revenues for CBS. The margins are high since these are incremental revenue deals that leverage already produced and marketed content.
CBS has 4 of its biggest shows ready for syndication for the next couple of years and that should help the company sustain content licensing revenues. Furthermore, given that several streaming players are springing up, CBS will have more opportunities to license its content and continue to expand margins. Margin expansion has been a key aspect of CBS’ success story and one that is likely to continue.
Content Is King
About 80% of the top 20 scripted programs are on CBS.  This is perhaps the reason why the company has been able to push for additional revenue streams. In fact, content licensing and syndication revenues grew by 39% when compared to the same quarter last year. This couldn’t have been possible without quality content. CBS has managed to continue to top total viewership among the broadcasting networks in the current TV season. The good thing about good content is that it opens up multiple revenue opportunities that tend to run for several years.
There is fierce competition to get share of viewing time and CBS is doing a great job so far. We don’t think the strategy will change. The company will continue to develop the best content and expand incremental monetization opportunities. Thus, the expansion in margin could continue for a while.
Our current price estimate for CBS stands at $33.52, implying a slight discount to the market price. We are reviewing our estimates in light of earnings.Notes:
- CBS’ Q1 2012 earnings transcript [↩]