What To Expect From Viacom’s Q1 Earnings?

Viacom (NYSE:VIA) is scheduled to announce its first quarter fiscal 2017 results on Wednesday, February 9. The company’s fiscal fourth quarter revenue came in at $3.2 billion, down 15% from a year ago, on the back of declines in both the Media Networks and Filmed Entertainment divisions. Viacom also reported adjusted operating income of $538 million, down 49% y-o-y, along with adjusted earnings of $0.69 per share, which decreased 55% y-o-y.

In the upcoming earnings, Viacom’s results will primarily be driven by its Media Network performance. Viacom has significant exposure to its media networks and relies heavily on television ratings. Looking at TV network groups as a whole in C3 prime-time viewing, Viacom was down 5% y-o-y in the first quarter. Moreover, Nickelodeon lost 7% among age group of 2-11 in Nielsen C3 metric. ^[1] Going forward, we expect the company to see pressure on its media networks in the first quarter, which yet again saw softer ratings. 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.

Developments In The Quarter

The Redstone-controlled National Amusements Inc (NAI), a holding company with an 80% stake in both Viacom and CBS, withdrew its support from the much anticipated CBS-Viacom merger in December, stating that this was not the right time to merge the companies despite its initial desire to make it happen in September. However, NAI signaled faith that Viacom would turn around its fortunes on its own.

Bob Bakish has already started taking steps since he took the CEO seat. He is reportedly looking to improve relations with affiliates and is working on a plan to turn around MTV. Viacom also bought Televisión Federal S.A. in Argentina for $34 million in November, which could help the company accelerate its growth strategy across Latin America. The company could be looking at inorganic growth beyond the competitive U.S. media market.

Expect Relative Growth in Studio Business 

Paramount Pictures collected $267 million at the U.S. box office during the December quarter, primarily led by the success of Arrival and continued benefits of Jack Reacher: Never Go Back. The studio’s performance was better in the December quarter compared to the prior year quarter, which should drive studio revenue growth.

Going forward, it would make sense for Viacom to make some international acquisitions to boost its studio business. However, Viacom’s $12 billion debt load makes it unlikely to spend top dollar on big acquisitions. The company could also think of selling a stake in the business, as proposed by the company’s ousted CEO Philippe Dauman, to raise cash. However, this proposition was opposed by Sumner Redstone. ^[2]

Have more questions on Viacom? Please refer to our complete analysis for Viacom

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1. Broadcast C3 Ratings Flat, Cable Nets Down 3%, MediaPost, Jan 31 2017 [↩]
2. Abandoned CBS, Viacom merger leaves scale issue lingering, Reuters, Dec 13 2016 [↩]