ViacomCBS (NASDAQ:VIAC) shareholders know the feeling of being caught up in events beyond their control. The value of VIAC stock surged at the start of 2021, topping $100 in March for 174% growth. Then the bottom fell out.
The story involved the collapse of hedge fund Archegos Capital Management and a move by ViacomCBS to sell shares in a bid to raise capital to fund its video-streaming efforts. Adding to the volatility? The possibility the company will become a takeover target as consolidation hits the video-streaming market.
At this point, ViacomCBS shares are trading in the $45 range. That’s up roughly 20% from the start of the year, but less than half of what they fetched in mid-March. And over the past two weeks, VIAC stock has been rallying. Is now the time to consider investing in the company in the hope that the rally continues to gain steam? Or is VIAC simply too risky at this point?
Let’s take a look at some of key elements of the ViacomCBS story — factoring out the Archegos collapse and March stock offering.
A Strong First Quarter
On May 6, the company delivered its first-quarter earnings results. Revenue of $7.41 billion was up 14% year-over-year. But that doesn’t tell the whole story. With most movie theaters still closed because of the pandemic and movie releases delayed, the company’s theatrical revenue was down 99%. However, streaming was on fire. ViacomCBS’s Paramount+ streaming service notched an addition six million subscribers during the quarter, hitting 36 million. Streaming subscription revenue was up 69% YoY, while streaming ad revenue grew 62% YoY.
Paramount+ may be far from a leader, but it is also signing up subscribers at a faster pace than a number of other well-known streaming video services. Don’t make the mistake of writing off ViacomCBS as a video-streaming also-ran.
In addition, television is still a thing. The company reported CBS was the “most-watched network in Prime, Daytime and Late Night” during the quarter. That helped the company to deliver a 21% rise in advertising revenue, outside of streaming.
That being said, the 36 million subscribers for Paramount+ is a small fraction of the frontrunners, which count 200 million or more paid subscribers. We are already beginning to see big moves toward consolidation in the industry. The subscriber numbers for Paramount+ (significant, but not nearly enough to be considered a leader) make it a natural acquisition target.
A Flood of Analyst Downgrades, Plus an Upgrade
In the aftermath of the March events, VIAC stock was hit by a flurry of analyst downgrades. By the end of that month alone, the tally was at least 10 downgrades in 2021.
However, in May, ViacomCBS shares received a double-upgrade from Bank of America. With the prospect of the company becoming an acquisition target seen as rising, VIAC was upgraded from “underperform” to “buy,” with a $53 price target.
Bottom Line on VIAC Stock
It can be tough to see the big picture on Viacom CBS with all the drama that’s taken place in 2021. The barrage of analyst downgrades and upgrades is adding to the confusion. Consolidation in the video-streaming market is adding a big dollop of uncertainty. Is ViacomCBS a takeover target, and what happens then?
Looking at the broad range of investment analysts tracked by The Wall Street Journal, the picture is just as muddy. The 29 analysts are all over the map, but their consensus rating for VIAC stock is “hold.” Their 12-month average price target of $51.04 offers a modest 13% upside.
That being said, this is a multimedia giant with a big presence and a massive content library. It remains a TV giant and has a solid — if not exactly market-leading — streaming-video service. ViacomCBS shares rate a “B” in Portfolio Grader. They’re not just priced at a fraction of the March high, they are also still trading well below 2018 and 2019 levels. There is the potential for further recovery here. VIAC stock also pays regular quarterly dividends with a yield currently at 2.12%, so there’s the income stock potential to consider as well.
The bottom line is VIAC stock has been volatile, but we seem to be through the worst of that. At this point, it offers opportunity to those who are not averse to some risk.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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