What To Expect From Viacom’s Q1 FY 2016 Earnings Announcement?

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Viacom (NASDAQ:VIA) will report its fiscal Q1 2016 earnings on February 9th. (Fiscal years end with September.)  What to we expect to learn? Below we will provide our thoughts in  detail But first let us share key points in a direct tabular fashion.   The chart below highlights our 2015 (calendar year) result estimates for Viacom.

Screenshot 2016-02-05 16.31.18

We expect to learn that the company continued to see pressure on its media networks business, which saw a double-digit drop in ratings for most of its networks in calendar year 2015. Lower ratings surely weighed on the advertising revenues for Viacom in the December quarter as well. While a ratings decline can be seen across the industry amid the rise of alternative video platforms and lower viewership on traditional television, the fall for Viacom’s cable networks has been much steeper. For instance, MTV dropped 26%, Comedy Central 25% and Nick at Nite 24% in 2015. [1] This can be attributed to the target demographics of Viacom’s cable networks. Viacom’s content primarily targets millennial viewers, who are more prone to cord-cutting. Moreover, Viacom lacks any sports programming, which usually is able to garner high viewership and better ad pricing. Unlike other media conglomerates, Viacom has a significant exposure to its media networks and relies heavily on television ratings.

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Looking at the studio business, theatrical revenues will surely take a hit, as there was no big movie released during the quarter while the prior year quarter benefited from the success of Interstellar.

On the brighter side, the company reported double-digit growth for its affiliate revenues in the previous quarter and it will be interesting to see if such uptick continues in the near term. We expect subscription revenue growth to slow down in the coming years due to continued pressure from the rapid growth of alternative video platforms, which will likely result in slightly lower penetration levels for Viacom’s cable networks. For instance, MTV’s penetration among U.S. pay-TV households has come down from around 95% in 2011 to 90% in 2015. During the same period, Netflix has seen tri-fold growth in its subscriber base. As more people embrace streaming options, pay-TV subscribers are likely to decline in the coming years, which will impact cable networks’ subscriber base. For Viacom, it has become immensely important to invest more into original programming, which can bring in some ratings growth and provide a stable outlook. It should be noted that Viacom’s stock price declined 25% in the past one year partly due to the rating woes and its subsequent impact on the earnings. We currently have a price estimate of $75 for Viacom’s shares, which we will update after the December quarter earnings release.

See our complete analysis for Viacom

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Notes:
  1. 2015 Ratings Wrap: Ranking This Year’s Network Winners and Losers, TV Insider, Dec 28, 2015 []