ViacomCBS & The Himalayas
The ViacomCBS Opportunity Through A Creative Lens
Hello! This is a fictional story written by me, Alan, the CEO and Co-Founder of Cruising Altitude. The goal of this article is to be an educational and engaging piece on ViacomCBS and is in no way professional investment advice. All ViacomCBS statistics are accurate based off of 11/6/20 (except point 11).
On February 19, 2020, I decided to backpack through the Himalayas for a year with my friend Jacob. We decided we would leave our phones behind and take a “gap year” from college. No phones meant no stocks. Being an avid long term investor, I was fearless in regards to not being able to check my equities for a year. I was excited for this opportunity and looked forward to reiterating the lesson to myself that how a stock of mine does in one day is meaningless. I invest in trends and companies with a multi-year timeline.
The Himalayan journey was an absolute experience of a lifetime. The people we met and the scenery we saw were truly remarkable. The highlight of the experience was spending the last few months in a small village, learning about their culture and simplistic way of life.
Although the experience was surreal, when November 1, 2020 arrived, the homesickness became a little too “real” and the idea of a Thanksgiving meal with family and friends ultimately led us to booking our flight home. When we arrived back on November 6, the reunion with our families was not how we expected it to go. No hugs. No kisses. In its place, we were handed masks and told about this concept of “social distancing”. Apparently, we were in the midst of an international pandemic. After asking more questions about the pandemic, I finally asked my father how my favorite stock was doing: ViacomCBS.
My dad handed me a sheet of paper with key nuggets from the quarterly report from earlier that morning. These were the 11 bullet points I received:
1. ViacomCBS has had a very interesting 2020 where revenues and profitability have slowed due to the pandemic; however, there was explosive growth in the company's streaming services CBS All-Access (CBSAA), Showtime OTT, and PlutoTV.
2. Fiscal 2020 Revenue is currently on pace for over $25 Billion in revenue and $2 Billion in net income. Not bad for a company that has already seen the worst of the pandemic.
3. CBSAA subscribers are up to 17.9 million representing 72% growth from Q3 19. The company has raised yearly guidance every quarter for year-end subscribers from 16 million to 18 million to finally 19 million- a number the company expects to beat in Q4. 19 million subscribers would lead to 70% Q4 year over year growth.
4. CBSAA is rebranding in early 2021 to Paramount+ which will be the first streaming service with live news, live sports, legacy ViacomCBS content, and new exclusive original content from blockbuster franchises like SpongeBob SquarePants, The Godfather, Star Trek, and much more.
5. Paramount+ will also be launching internationally in 2021 in Australia, Latin America, and the Nordics. This is one of the first steps in ViacomCBS’s strategy to generate a multi-billion dollar (annually) international streaming business.
6. Pluto TV, ViacomCBS’s FAST (Free Advertisement-Supported Television) asset has also had explosive growth over the pandemic in subscribers, consumption, and monetization. The company has grown revenue by more than 100% Y/Y up to 28.4 million free users. The company expects to be over 30 million subscribers by the end of the year.
7. Additionally, PlutoTV International is still in its infancy. The company launched in 17 Latin American countries earlier this year as well as several European countries. Over the next few months, PlutoTV will be launching in Brazil, Spain, France, and Italy. PlutoTV international currently has 7.5 million international users up from 6.4 million last quarter. PlutoTV International has a greater TAM (Total Addressable Market) than the US PlutoTV product.
8. Overall, the streaming revenue in Q3 grew from $407 million to $636 million representing 56% growth year over year. On an annualized scale, the company is on track for 2.5 Billion of domestic streaming revenue. A conservative 10x multiple of this rapidly growing revenue stream would be $25 Billion in value, significantly more than the share price of when you left to the Himalayas.
9. For comparison sake, Netflix, a much more proven less growth-oriented asset, is currently valued at around 10x revenue. (Also, Netflix is also a company that had less revenue and net income than ViacomCBS in Fiscal Year 2019)
10. Last but not least, Affiliate Revenue, the revenue metric that most reflects the effects of cord cutting, GREW 10% Y/Y- a shocking number as the first couple of quarters of the pandemic were the greatest cord-cutting quarters ever. The company was able to do so through strategic business deals with OTT providers like YouTube TV to carry ViacomCBS stations on the service. The company expects Affiliate Revenue to continue to grow.
11. The stock was trading at $60 a share, representing a $40 Billion market cap
A lot of amazing information provided by my Dad! The fact that the company was able to remain profitable during the pandemic while generating explosive streaming growth made me ecstatic. I remember thinking that a $40 Billion market cap still sounding cheap as the company would only be trading at 1.5x sales with explosive revenue growth in various, hot areas.
As I was arriving home, my father told me that the first 10 bullet points from the cheat sheet were true, but the 11th one was not. The company was trading at $29 a share at a Market Cap of around $17 Billion. After a few minutes of not believing him, I took his phone and checked myself. ViacomCBS was a $29 stock. I was ecstatic. Why? My money had no not appreciated as much as I thought! Why would I be ecstatic?
I was ecstatic because I understood that this was another classic example of Wall Street counting out a legacy stock and not understanding the quality of management and growth capabilities the company contains. The market always reflects the value of an equity. Sometimes it takes years to do so, but as the growth and financial success becomes more clear, the stock moves.
At 9:30 am the next morning, I increased my ViacomCBS holding by 10% with a smile on my face. I don’t know when the market will reflect the fair value but what I do know is I will gladly take my 3.5% dividend while I wait!
All the best,
Alan
CEO and Co-Founder of Cruising Altitude
cruisingaltitude33@gmail.com