CBS (NYSE:CBS) reported Q2 earnings that showed continued growth in revenues as well as significant improvement in margins influenced by a better cost structure. While the economy and investors seem flummoxed, which could weigh on advertising revenues, CBS is benefiting from its licensing deals. Below we take a quick look at this trend and the extent of its on its shares. CBS competes with other media conglomerates like Disney (NYSE:DIS), News Corp (NASDAQ:NWS), Time Warner (NYSE:TWX) and Viacom (NYSE:VIA) primarily in TV and publishing business.
Our price estimate for CBS of $33.50 implies around a 35% premium to the market price.
Content Deals With Netflix and Amazon
The company signed content deal with Netflix (NASDAQ:NFLX) in Q1 and now has reached a non-exclusive agreement with Amazon’s (NASDAQ:AMZN) streaming service. In addition to this, CBS also signed separate deals with Netflix for its international streaming. This provides CBS with a better hedge against continued softness in economy. Economic turbulence tends to impact advertising revenues more harshly and a stable content deal with fast growing streaming services will enable CBS to maintain growth despite choppy economic times.
Going forward, we can expect these revenues to expand as more and more streaming players compete for content in the market. The non-exclusive nature of agreements helps CBS in extracting revenues from multiple players.
TV Licensing is 17% of CBS’ stock
We estimate that TV licensing constitutes about 17% to CBS’ stock and is therefore a critical revenue stream to the company. If content deals continue to proliferate, the revenues could increase at a rate faster than we forecast and both the value of this division as well as our price estimate for CBS could see upside.