Viacom (NASDAQ:VIA), which competes with Time Warner (NYSE:TWX), Disney (NYSE:DIS) and News Corp (NASDAQ:NWS), will release its Q2 fiscal 2012 earnings on May 3rd, Thursday. It will be critical for investors to look out for the performance of Viacom’s key cable networks such as Nickelodeon and MTV, given that the company is heavily dependent on its cable networks business. We expect the results to be mixed in this regard due to offsetting trends of healthy ad demand and ratings declines. Furthermore, the results for Viacom’s filmed entertainment division are likely to be soft compared to Q1 fiscal 2012, and it is unclear whether year-over-year growth will be present.
We estimate that Nickelodeon and MTV together constitute a little under 30% to Viacom’s value. Back in mid-Dec 2011, Viacom showed confidence in the improving ad market that was expected to lift its Q1 2012 results. The ad market has been certainly good as the improving economy and growth in auto sales has influenced advertisers to increase their ad spending.
However the question is whether this demand is sufficient enough to make up for ratings decline? According to Nielsen Media Research, the ratings for MTV, Nickelodeon and some other Viacom media networks have declined significantly in 2012. It is hard to pinpoint the real cause behind this decline, but there could be few possibilities including an increase in time spent by viewers on streaming and competition from Disney Channel, which overtook Nickelodeon for the first time in the ratings recently.
As far as Viacom’s filmed entertainment arm Paramount Studios is concerned, it is not performing as well as it did last year. Last year the company topped worldwide box office market in terms of market share and so far this year it has managed 6th position. Furthermore, due to seasonality, the comparison with Q1 fiscal 2012 will make this quarter’s results look soft. Paramount may have a hard time registering growth this year due to hard comparison against last year when it put up a spectacular performance.
Our current price estimate for Viacom stands at $64.29, implying more than 25% premium to the market price.