ViacomCBS’ Stock Crashes 60% In 2020; Is It Attractive Enough At $16?

After over a 60% decline in ViacomCBS’ (NASDAQ: VIAC) stock since the beginning of the year, at the current price of $16, we believe ViacomCBS’ stock is likely to remain around the current level during the coronavirus crisis. However, post the crisis, the stock could see a healthy upside, which possibly makes the company attractive at its current price.  The stock is down more than 70% compared to where it was at the end of 2017, a little over 2 years ago. Our dashboard What Factors Drove -71.8% Change In ViacomCBS Class B Stock Between 2017 And Now? provides the key numbers behind our thinking, and we explain more below.

The company’s stock declined about 27% from $56 at the end of 2017 to $41 at the end of 2019, which is justified by over a 50% drop in the company’s P/E multiple from 15.5x in 2017 to 7.7x in 2019. On the contrary, during these two years the total revenue went up by 4.8% due to higher advertising and content licensing revenue. Additionally, the net income margin shot up by 36% during these two years, from 8.7% to 11.9%. Despite such a sharp rise in margins, the P/E multiple declined from 2017 to 2019, as higher margin was mainly due to a tax benefit received. Excluding the tax benefit and other non-operating items, ViacomCBS’ operating profit margin declined from 20% in 2017 to 15% in 2019 due to higher operating cost and merger-related expenses, thus leading to a slide in the P/E multiple.

However, most of the drop in P/E multiple came in 2020, with it declining from 7.7x at the end of 2019 to 3x currently, marking a total decline of 81% since the end of 2017. This was mainly due to the impact of the coronavirus crisis, which we explain below.

Effect of Coronavirus

The global spread of coronavirus has led to lockdown in various cities across the globe, which has affected industrial and economic activity. This has, in turn, led to a drop in consumption and spending power. Additionally, due to lockdown in almost all major cities over the globe, major movie releases and shooting has been halted, which is not good news for a traditional media giant like ViacomCBS. The company’s key revenue sources – movie theaters, film openings, and live sports events from the CBS network – have come to a virtual halt due to the pandemic. Additionally, the cord-cutting has led to a drop in TV advertising demand, affecting revenue projections.

VIAC’s stock is down by over 52% since January 31 after the World Health Organization (WHO) declared a global health emergency in light of the spread of coronavirus. However, during the same period, the S&P 500 index saw a decline of about 12%. Thus, VIAC’s stock has performed far worse than the broader market during this crisis so far. Q1 results will confirm a lower revenue, with its Q2 and 2020 guidance also likely to be brought down. In the absence of any clear signs of virus containment by the end of April, the stock could see a further downside from its current level. However, if there are signs of containment of the virus around the Q1 earnings announcement, there is a possibility of a healthy upside for the stock.

ViacomCBS offers 4 unique streaming services (Pluto TV, BET Plus, Showtime Streaming, CBS All Access) for different audiences, as opposed to Netflix’s same offering at different prices. The company is focused on enhancing its streaming services to take on segment giants like Netflix, Disney, and Amazon. The company’s willingness to invest more into streaming (in line with industry trend) and availability of resources to do so – $632 million cash balance, $3.5 billion unused credit lines and recently issued $2.5 billion notes – bodes well for the company’s future growth. We believe that if the pandemic dies down in May 2020, along with the streaming revenue ViacomCBS’ traditional business segments will also start picking up, leading to a positive top line outlook. In such a scenario (of coronavirus being eliminated by May 2020), it is possible that ViacomCBS’ stock could see a healthy upside as it is one of the worst affected stocks in the media space, providing it a wider window to bounce back.

View our dashboard analysis Coronavirus Trends Across Countries, And What It Means For The U.S. for the current rate of coronavirus spread in the U.S. and forecasts on where it could be headed, based on comparison with other countries. Our dashboard -28% Coronavirus crash vs 4 Historic crashes builds a more complete macro picture of historic crashes and how the sell-off during early March compares.

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