ViacomCBS crazy volatility is rooted in sanity

Based on Fox’s valuation of 8 times EBITDA, ViacomCBS’s TV divisions could be worth $46bln

  
ViacomCBS headquarters is pictured in New York, New York, U.S. December 5, 2019.

ViacomCBS headquarters is pictured in New York, New York, U.S. December 5, 2019.

REUTERS/Kate Munsch

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

NEW YORK - ViacomCBS has had some crazy ups and downs. The media company’s stock more than doubled in eight weeks, closing at a record high of over $100 on March 22 before a blowup at Archegos Capital Management sent shares plunging back to around $44. Some of the insanity may be warranted. Viacom’s streaming service, which contributed to its market rise, is a crapshoot when it comes to valuation. Still, shares may be undervalued.

The company, controlled by Shari Redstone and her family, is home to U.S. TV station CBS, cable networks including MTV and Nickelodeon and movie studio Paramount Pictures. Last year the broadcast and cable units made $5.6 billion in EBITDA. Based on Fox’s valuation of 8 times EBITDA, ViacomCBS’s TV divisions could be worth $46 billion.

Then there is Paramount. Lions Gate Entertainment’s has an enterprise value of around 13 times EBITDA. Based on that, ViacomCBS’s film division would be worth another $2.8 billion. Simon & Schuster, the company’s publishing unit, is in the process of being sold. All in, those three groups represent more than $50 billion of enterprise value.

There are two ways to think about the last and perhaps most important bit, Paramount+, ViacomCBS’s flagship streaming product. Revenue from this business was $2.6 billion last year and is growing fast. If that revenue is valued on the same multiple as Netflix, it could be worth some $26 billion.

But that is aggressive. Paramount+ launched late in the game, and according to Bain, U.S. consumers are only willing to pay for three to four services at most. Even if it only got half the credit of Netflix, the company would be worth more than $63 billion. After taking out the company’s net debt, that would suggest shares are worth $78 apiece. The Archegos blowup has created mayhem – but an opportunity in disguise.

CONTEXT NEWS

- ViacomCBS shares plunged 27% on March 26. The same day, Wall Street banks unloaded shares of the media company linked to the default of margin calls by investment firm Archegos Capital Management, according to press reports.

- ViacomCBS shares closed at an all-time high of $100.34 per share on March 22.

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

(Editing by Lauren Silva Laughlin and Amanda Gomez) ((jennifer.saba@thomsonreuters.com; Reuters Messaging: jennifer.saba.thomsonreuters.com@reuters.net))

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