Advertising, Subscriptions To Drive CBS’s Fiscal 2019

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CBS Corporation‘s (NYSE:CBS) revenues and earnings per share missed market expectations when it reported its fiscal fourth quarter results on February 14. In Q4, the company’s overall revenue increased 3% year-over-year (y-o-y) to $4 billion, primarily due to significant growth in political midterm advertising and affiliate and subscription fees, partially offset by a double-digit drop in content licensing revenues. This was due to the timing of international sales and tough comps against big domestic sales compared to the prior year. In addition, CBS reported adjusted operating income of $837 million (up 10% y-o-y), reflecting a higher investment in programming and technology for its new direct-to-consumer platform. Also, the company posted adjusted earnings of $1.50, up 25% y-o-y.

CBS’s stock price declined close to 25% over the course of 2018 despite strong financial results, largely due to the legal issues involving Leslie Moonves and National Amusements. Our $61 price estimate for CBS’ stock is almost 20% ahead of the current market price. We have created an interactive dashboard on What To Expect From CBS’s 2019 Results, which outlines our forecasts for the company. You can modify our forecasts to see the impact any changes would have on the company’s earnings. In addition, you can see all Trefis Media Company data here. Going forward, we expect the company to post an increase in earnings and revenue growth rate in Q1, driven by growth in advertising, direct-to-consumer offerings, retransmission and reverse comps and international content licensing. In Q1 2019, demand for national advertising is expected to grow, and scatter pricing could pace up to about 25%. At the Local Media segment, the company expects revenues to pace up to high single-digits.

Detailed 2019 Expectations

CBS expects to see strong gains in advertising, with big sports events programming from the Super Bowl and the NCAA men’s basketball tournament. The company also expects continued growth in content licensing, as it is planning to expand content development and distribution to a host of third-party distributors such as Apple, Netflix, and TBS. In the direct-to-customer channel, CBS reported 8 million subscribers combined at CBS All Access and Showtime OTT in the domestic market in 2018. Further, the company expects to produce 30% more hours of original programming in 2019 than it did in 2018. CBS’s management also made news on the over-the-top front, projecting 25 million subscriptions for All Access and Showtime OTT by the end of 2022. The company also stated its financial goals to reach a high-single-digit revenue CAGR and double-digit adjusted earnings CAGR through 2021, largely driven by investments in programming, marketing, and technology.

Looking ahead in 2019, we expect CBS to generate around $15.5 billion in revenues and adjusted earnings of around $2.1 billion. Our revenue forecast represents year-on-year growth of nearly 7%. Of the total expected revenues in 2019, we forecast $10 billion to come from the Entertainment business, nearly $2.7 billion from the Cable Networks business, over $800 million in the Publishing business, and nearly $1.9 billion for the Local Media division.

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