Advertising Income Will Boost Viacom’s Q1 Earnings

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Viacom (NASDAQ:VIA) will report its fiscal Q1 2014 earnings on January 30. (Fiscal years end with September.) We expect the company to post gains in its media networks business driven by the continued growth in ratings, especially at the Nickelodeon network. Higher ratings should have boosted the advertising revenues for Viacom. The company’s popular music channel MTV also enjoyed higher ratings for its features. MTV’s European Music Awards (EMA) 2013 witnessed a growth of +137% year over year among its core 12-24 demographic. [1] Better ratings at media networks led to 24% jump in the net income for the company in the previous quarter. [2] We expect Viacom to benefit from the improved ratings and see higher advertising revenues in Q1 2014 as well.

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Media Networks Will Drive The Growth

Nickelodeon’s ratings continued to grow in the month of October driven by its popular show SpongeBob SquarePants and its hit preschool lineup featuring Paw Patrol, which was the month’s number-one preschool series on all TV. [3] Approximately 918,000 viewers a day among children ages 2 to 11 years viewed Nickelodeon in the fourth quarter. This is a better performance than The Disney Channel, which averaged 874,000 viewers during the same period. [4] Nickelodeon’s continued focus on new and original programming appears to be paying off well for Viacom. While it will be interesting to see if Nickelodeon’s ratings continue to move northward, the network for now continues to drive advertisement growth for Viacom. This could prove meaningful to Viacom as Nickelodeon U.S. contributes more than 13% to the company’s value, according to our estimates. The contribution is much more significant if we account for the global operations. Globally, Viacom reaches 330 million households across 110 countries, and it is poised to benefit from the surge in Nickelodeon’s viewership as television continues to dominate global ad spending.

Global Ad Spending Rises

Advertising is an important source of revenue for content owners such as Viacom. For fiscal Q4 2013, the company’s ad revenues grew by 10%, primarily driven by growth in its media networks. [2] The advertising market has been trending well this and television continues to dominate its position as the front-running media format for advertising. For the third quarter of 2013, total advertising declined by 2% to $34 billion and TV ad spending declined by 6.3% reflecting tough comparison to last year’s ramped up political and Olympics spending. [5] Excluding political and the Olympics spending, total advertising was actually up close to 3% during the third quarter. [6] This is better indicator of the ad market trend in the U.S. The chart below compares the U.S. TV ad spend growth rate with overall ad spend growth rate.

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Notes:
  1. THE “2013 MTV EMA” DELIVERS HUGE TV RATINGS IN KEY MARKETS, UP +137% AMONG P12-24, MTV EMA Press Release, Nov 13, 2013 []
  2. Viacom’s SEC Filings [] []
  3. NICKELODEON WINS OCTOBER WITH KIDS 2-11, KIDS 2-5 AND TOTAL VIEWERS, MARKS 9 STRAIGHT MONTHS OF GROWTH, Nickelodeon Press Release, Oct 29, 2013 []
  4. Nickelodeon Retakes Kids’ Ratings Crown With ‘Paw Patrol’, Bloomberg, Dec 19, 2013 []
  5. US TV Ad Spend and Influence, Marketing Charts, Dec 23, 2013 []
  6. Kantar Media Reports U.S. Advertising Expenditures Declined In Q3 2013, Due To Comparison Against High Olympics, Election Year Spend In 2012, Kantar Media, Dec 16, 2013 []