CBS Posts 6% Earnings Growth Led By Higher Affiliate And Subscription Fees

CBS Corporation (NYSE:CBS) in the third quarter posted 2% revenue growth while the adjusted earnings were up 6% to $0.74 per share. ^[1] The company benefited from its coverage of NFL games and higher political spending, which boosted the advertising revenues. However, the earnings were primarily driven by a 6% growth in affiliate and subscription fees.

CBS will see much better Q4, driven by higher advertising revenues amid increased political spending and continued demand for its content. The company stated that the fourth quarter will be strongest quarter this year. After completing the separation of its outdoor business, the company’s revenue mix for the first time weighed more towards non-advertising income, which contributed 54% to the overall revenues. ^[2]

In an another development, CBS confirmed that its premium network, Showtime, will follow HBO’s path and offer its programming through a streaming service in 2015. ^[2] This move comes in as no surprise given that the content owners are looking forward to try alternative routes to reach the cord-nevers and cord-cutters. CBS had earlier launched CBS All Access, a streaming service for its broadcasting network.

We estimate revenues of about $14.84 billion for CBS Corporation in 2014, with EPS of $3.20, which is in line with the market consensus of $3.04-$3.45, compiled by Thomson Reuters. We currently have a $60 price estimate for CBS Corporation, which we will soon update to incorporate the third quarter earnings.

See our complete analysis for CBS

Entertainment Division Sees Lower EBITDA Given Higher Programming Costs

The entertainment division, which includes, CBS Television Network, saw a mere 1% growth in revenues while EBITDA declined by 22% to $335 million, due to an increased investment in NFL programming. ^[1] Looking at 2013-14 season, CBS continued to be the most watched network but ratings at almost all of its established shows were down as compared to the prior season.

Last month, CBS launched a streaming service for its content and it offers thousands of episodes of various popular shows such as The Good Wife and Survivor. The service priced at $5.99 per month also includes the current season primetime shows, a day after they air on television. Currently, the live feed is available in one–third of the country and video-on-demand is available nationwide. The company expects to increase the coverage for live feed by next year. The streaming service, which targets the 10 million households who are subscribed to broadband but not the pay-TV, offers a new revenue stream for the company. CBS stated that there is a significant amount of content consumption on two platforms, broadband and mobile, and it wants to ensure that CBS’ content is available on both the platforms. ^[2]

Continued Growth At Cable Networks

Cable Networks contribute more than 25% to CBS’ stock value, according to our estimates. The Cable Networks division includes Showtime Networks, CBS Sports and Smithsonian Networks. The segment revenues increased 5% to $624 million and EBITDA grew 4% to $272 million led by higher licensing and affiliate revenues. Showtime networks have seen a solid subscriber growth over the past few years, growing from 54.8 million subscribers in 2007 to 76 million subscribers in 2013. ^[1] With the rise in subscriber base, cable networks revenues also grew from $1.16 billion in 2007 to $2.07 billion in 2013. The growth was primarily driven by the appeal of Showtime. The network’s compelling original programming has been on a roll. Its shows such as Dexter and Homeland have done well in the past. Last year, the network came up with two new hits, Masters of Sex and Ray Donovan. Both these shows were hit and saw good ratings.

We believe CBS will continue to see strong growth in cable networks driven by the popularity of the content it creates. We estimate the segment revenues to be over $2.10 billion in 2014 and an estimated EBITDA margin of 47% will translate into EBITDA of close to $ 1 billion by end of the year.

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1. CBS Corporation’s SEC Filings [↩] [↩] [↩]
2. CBS’s (CBS) CEO Leslie Moonves on Q3 2014 Results – Earnings Call Transcript, Seeking Alpha, Nov 5, 2014 [↩] [↩] [↩]