$VIAC- Earnings SuperPlay

ViacomCBS is primed for an incredible earnings quarter call. I’m going to try to keep this shorter than it should be by keeping this post mostly focused on VIAC as a short term earnings play, but this stock is also an incredible pure long play as well. DD for long term investors is linked at the bottom of this post. A few numbers and charts might be slightly outdated (by a week maximum). I started working on this DD last week, so a bit of my data is old! $VIAC Current Valuation- ViacomCBS as of market close on February 9 is currently valued at a 23.30B market cap, 7.02 P/E, and 9.14 forward P/E, and At this valuation, the company screams value trap. Forward PE is currently being dragged down by Q4 2021 EPS estimates, but I will discuss that later in this post. VIAC is a dying company in a stagnant industry with 0 revenue growth and a limited future? Wrong. First, let’s look at their topline. VIAC’s 2020 revenue was 25.03B, while their TTM 2021 revenue is 26.81B. Additionally, their current average 2022 revenue estimate is 29.29B. Low revenue growth, but certainly not a dying company deserving a P/E ratio of 7. Now, let’s look at the valuation of peers in the streaming industry below. The chart is a little bit outdated, but the numbers are approximately still the same. All streaming companies generally trade at a forward P/E generally greater than 20, excluding DISCA, which is trading at lower valuations relative to its peers due to its unfavorable merger/acquisition terms with AT&T’s WarnerMedia. ​ https://preview.redd.it/bkjuciuroqh81.png?width=1250&format=png&auto=webp&s=6def5debdb765bf60ba732271f46ed08df8dfcb7 There are no similar hurdles in the upcoming future for ViacomCBS. The market is simply completely discounting ViacomCBS’ streaming arm and its current progress. Cable TV accounts for around 45% of VIAC’s current revenue, and because CableTV provides 12-13B in revenue annually, cord-cutting concerns are a major point of worry for investors, company’s executives and overall company long term health. VIAC’s executives, however, clearly recognized these concerns, which is why they acquired PlutoTV in 2019 for $340 million and launched their own streaming platform in March 2021. Since its release in March of 2021, Paramount+ has already driven Viacom to accumulate 47.4 million subscribers- 4.3m in Q3 and 6.5m in Q2 of 2021 alone. In addition, PlutoTV generated over $1B in ad revenue in 2021 and has surpassed 55m monthly active users- an incredible investment by ViacomCBS. In 2020, PlutoTV had 33m MAU’s and 450m annual revenue. Its growth in the past year is astounding. PlutoTV namely, along with Roku, and Tubi are currently the leading cable killers. Although VIAC is losing cable customers and their revenue, it’s gaining them right back through PlutoTV. Current Outlook In 2021, this stock has been completely shafted by the implosion of Bill Hwang’s fund, general bearish sentiment toward VIAC, and tax-loss harvesting. However, the stock found a bottom in late December 2021 and has been slowly climbing its way back up in 2022. ​ https://preview.redd.it/jrervk7toqh81.png?width=2286&format=png&auto=webp&s=45a26f6d363344d72cf353726d89ca27c5c32cf9 https://preview.redd.it/4me1xzvtoqh81.png?width=2294&format=png&auto=webp&s=383c1312aeb99f2ce5d7d930b9da1d110d000674 ​ An incredible earnings report with absolutely blowout streaming numbers could initiate a large rally to at least $40 for this stock- likely way higher. The most likely scenario for said rally would be initiated by the market finally gaining faith in Viacom as a legitimate streaming company. If VIAC’s next earnings report sufficiently blows expectations out of the water, this company might finally see a much-deserved streaming valuation. Even a price/earnings ratio of 15 would see VIAC doubling from its current valuation. A 10 million subscriber quarter would be a great start- and this is exactly what we’ll be seeing. VIAC will double if it’s valued at a genuine streaming company. On February 15, VIAC will be announcing Q4 earnings, announcing full 2021 financial results, and hosting an investor event providing an update on Paramount’s momentum and the company’s content and IP . A quarter with an increase of 10 million new subscribers and a well laid out plan by VIAC executives on the future for Paramount+ would finally give VIAC the credibility it needs as a legitimate streaming play. Luckily for us, we can use Google trend data, cyclical industry trends, and look at updates from VIAC executives, which we can use to estimate subscriber growth and next quarter’s bottom line. First, we can look for Paramount+ Google Trends activity. Starting from Q4, there is a massive spike in Google user interest in Paramount+. In Q2 of 2021, Paramount+ added 6.5m subscribers, while in Q3, they added 4.3m. Based on past Google Trend activity, we are set to see a massive increase in subscribers in Q4. However, we need to dig deeper. Why has activity spiked? ​ https://preview.redd.it/k87sm5luoqh81.png?width=2316&format=png&auto=webp&s=6a5d434dfdc98e06aa556575be954a61e1c14944 T-Mobile partners with ViacomCBS. In early November of 2021, T-Mobile partnered with Paramount+. They now offer a free year of Paramount+ to all customers with either cellular or internet plans. In that same week, Paramount announced that they added one million new subscribers. You know what people enjoy? Free stuff. T-Mobile has a lot of customers- over 100 million of them. Let’s say 50% of those subscribers have cellular or internet plans. 5% of cellular or internet customers redeem their free Paramount+ membership last quarter. That’s 2.5m subscribers alone. This estimation is generously underestimated, but you should get the idea. This partnership with T-Mobile should not be underestimated. Based on Q3 and Q2 numbers, we can estimate that base subscriber gain (without the positive catalysts I will be discussing- like the T-mobile partnership) would’ve been approximately 5 million. Let’s add 2.5 million subscribers from T-Mobile's partnership. We are already at 7.5 million subscribers in Q4. Football Next, we can look at football. Q4 of VIAC’s fiscal year overlaps with NFL regular season, so we can expect a large boost in viewership from the NFL season ramping up into full swing. But that isn’t all. This year’s NFL season was incredible. In the 2021 regular season, NFL viewership saw an increase of almost 10% in ratings from those in 2020, and a 6-year record in viewership at 17.1million. CBS saw a nine per cent increase for its regular season games, posting a 21.59 million average audience across its ten national game windows. Guess who streamed the most viewed game of the regular season? That’s right. CBS. The Dallas Cowboys featured in five of the 2021 regular season’s ten most watched games. This included the Thanksgiving matchup against the Las Vegas Raiders on CBS, which became the most-watched NFL regular season game on any network in 31 years, drawing in 40.8 million viewers. This was only the second regular season game to eclipse the 40 million mark since 1988. And guess where CBS NFL games are available? That’s right. Paramount+. But the NFL is just part of the story. CBS has the streaming rights for the SEC. Viewership last season was record breaking, and for the championship game last season it peaked at almost 18m viewers. It wasn’t just the championship game though- viewership for the SEC was at an all time high, especially on CBS. And obviously, a portion of these viewers signing up for the game to be streamed on Paramount+. Google trend data is available below. ​ https://preview.redd.it/jrbn6lavoqh81.png?width=2310&format=png&auto=webp&s=0160cee4bce9c85cb1bdb7bec03c8921728656b7 Since Paramount+ was released in March of 2021, until Q4, it has barely seen any growth from true, regular season football. Let’s estimate that NFL and SEC streaming contributed to a 1 million subscriber gain for Paramount+. Q4’s net subscription gain is already at 8.5 million. New Shows- Yellowstone and Kingstown In Q4, Paramount+ also had two new shows, 1883, and Kingstown, which both debuted on Paramount+, the former of which drew record viewers. Supporting the company’s claim for 1883‘s big debut on Paramount+ over the first 24 hours of release is the delivery of the premiere’s airing behind Yellowstone on Paramount Network. The promotional linear telecast drew strong 4.9 million total viewers in Live+Same Day, according to Nielsen, making it the biggest new series premiere on cable since 2015 (AMC’s Into the Badlands, which followed juggernaut The Walking Dead at the height of its ratings supremacy). https://preview.redd.it/d1ag07svoqh81.png?width=2312&format=png&auto=webp&s=e17e3cbe99854b015f6bddd19d575d349bbc2964 ​ For comparison, another new Taylor Sheridan drama series for Paramount+, The Mayor Of Kingstown, logged 2.6 million viewers for the special airing behind Yellowstone (7.5 million) on Paramount+ for a 35% retention. (Into the Badlands premiere’s TWD lead-in retention was 50%). ​ https://preview.redd.it/9ntfgkfwoqh81.png?width=2304&format=png&auto=webp&s=a9e0393062ac1ea7eec3cfc5ed1fdfd245767e84 Q4 of every fiscal year always sees a massive increase in subscriber growth. For reference, Disney added 11.8 million subs in its most recent quarterly earnings report last week, yet in the quarter before, it had only added 2 million subs. Netflix sees a similar effect (its quarterly subscriber growth chart is available near the bottom of this post). Netflix gained 4.4 million subscribers in Q3 of 2021, and 8.3 million in Q4. I’m not totally sure why there is always such a massive spike in subscriber growth in the last quarter of every year, but I will attribute this cyclical effect to Christmas gift-giving and other holiday boosts. Let’s make another conservative estimation and say that Kingstown, Yellowstone, and cyclical seasonal factors gives Paramount+ a 1.5 million subscriber addition. We are not set for a 10 million subscriber growth quarter for just Paramount+. Awesome November Update- ViacomCBS’s Bob Bakish also updated us in November on Paramount’s growth. In the current fourth quarter, total streaming revenue is crossing an annual run rate of $5 billion, Bakish shared, adding: “We are getting somewhere significant pretty quickly.” ViacomCBS said in February that it expects to grow its streaming revenue to $7 billion by 2024, up from a then-current run rate of $3.6 billion. What’s this mean? 20% streaming revenue growth QoQ at the very minimum. Streaming revenue in Q3 of 2021 was 1.08B. At 5B ARR, we are looking at 1.25B streaming revenue in Q4. With the current pipeline of content that is coming to Paramount+ (Halo Movie, Scream, Sonic 2, etc.), I wouldn’t be surprised if VIAC is able to achieve $9-10B streaming revenue by the end of 2024. CableTV is responsible for around $12-13B revenue, based on VIAC’s current declining CableTV revenues, it’ll still be providing at least $10B revenue in 2024. VIAC will continue to see top-line growth for the next 5 years. EPS Now, let’s talk about EPS estimates for Q4. The EPS estimate for Q4 is at an all time low of 0.45. First of all, that’s fucking ridiculous, and VIAC was definitely going to beat estimates regardless of any special factors. Wall street analysts are suddenly expecting the bottom line to decrease by 40% just because they would be investing more into streaming? That’s ridiculous. https://preview.redd.it/4qx7olqyoqh81.png?width=1344&format=png&auto=webp&s=9ce723c4a42472d414e79cd79d996337a79ab7c9 ​ In the last 5 years, VIAC has never had a single quarter where its reported EPS was below 0.75. 0.45 EPS is ridiculous. However, VIAC is guaranteed to smash this 0.45 EPS estimate out of the park. How do I know this? Last November, they announced their Studio City Lot in LA for 1.85B, and the deal was expected to close by the year’s end. With how ridiculously inflated LA real estate is these days, we can definitely expect that the proceeds were significantly above book value. What does this mean? Net income for Q4 will be significantly higher than expected, especially with analyst estimates already so low. In the last 3 months, the EPS estimate for VIAC has only constantly been brought further and further down. Q3 Guidance: Total company revenue grew 13% year-over-year to $6.6 billion. Adjusted OIBDA fell three percent to one billion as we continue to ramp up programming and production spend coming out of COVID and increase our investment in streaming. Adjusted diluted EPS was $0.76. Adjusted free cash flow was a use of $187 million in the quarter, reflecting a ramp in programming spend, including our investment in streaming. Adjusted free cash flow in Q4 should reflect a continuation of this trend. Less FCF. Certainly. A 40% drop? Unwarranted. 0.60 EPS is far more reasonable. Let’s make a small estimate for EPS if we factor the Studio City Lot. The Studio City Lot was sold for $1.85B and auctioned off to the highest bidder. As of September 30, 2021, VIAC had an estimated $1.809B worth of property and equipment on its balance sheet. Let’s estimate that The Studio City Lot had a book value of $1B - likely far higher than it should be. If we disregard taxes, the land sale will result in an $850 million dollar boost in earnings in Q4. Based on VIAC’s outstanding shares (between 600-650 million), we can estimate that this one-time land sale will cause an EPS boost of $1.31/share, disregarding taxes. That’s 3x higher than current EPS estimates, and that’s disregarding VIAC’s true bottom line. EPS will be a blowout. Amazon mooned on an EPS blowout thanks to their Rivian gains. I think we see a similar effect here. VIAC literally sold their Studio City Lot for $50 million higher than the book value of all of their property and equipment listed on their Q3 balance sheet. TTM and FTM EPS ​ VIAC Q3 2021 Balance Sheet- Property and Equipment Valued at 1.809B ​ Licensing and Possible Acquisition The most powerful players in the streaming wars are Netflix, Disney(+Hulu & ESPN), Amazon, and HBO & Discovery once they merge. A quarter of ALL Amazon, Peacock, and Netflix content is licensed from VIAC. Portion of NFLX content Licensed from VIAC ​ The streaming wars are just beginning, and in this industry, content is king. And guess who owns a veritable mountain of IP? ViacomCBS. As Disney and HBO take back content rights from rivals to improve their own streaming libraries, Viacom’s own licensed IP becomes more valuable and even more important when it comes to strengthening content selection and variety. Their leverage has grown ever stronger at the negotiations table when it comes to licensing content to other providers and it will continue to improve in the next few years. We can expect even higher content licensing revenue to continuously increase in the future. “Content licensing is an important business but … our strategy is clearly evolving, particularly with Paramount+,” Bakish said. The company has a library of 4,000 films, 140,000 TV episodes and current production of 150 series globally. “We can’t keep all that for ourselves. It doesn’t make sense. It’s too much,” he said. Although Bob has stated otherwise last year, the threat of VIAC pulling a Disney/Warnermedia hangs over Amazon, Hulu, and Netflix like a dangling sword. VIAC could decide to go all in on its streaming platform, pull its content from its rival platforms, and go all-in on Paramount+. This would be a massive hit for VIAC’s revenue and earnings, but the threat remains. This threat, however, is what makes VIAC so valuable if acquired by Netflix, Amazon, or even Apple (lol). An acquisition by Netflix or Amazon would allow it to pull VIAC’s content from the other platform, dealing a massive blow to a competitor. The acquiring company would gain an enormous library of content, streaming rights (CBS NFL rights are incredibly valuable), and Paramount Studios, whose recent movies include Jackass Forever, Scream, Clifford the Big Red Dog (lol), Sonic the HedgeHog, The Tomorrow War, and A Quiet Place. The most recent quarterly earnings reports of both Disney and Netflix have shown deep, systematic problems with Netflix. It’s losing the streaming war. In Q4, Disney added 11.8 million subscribers, allowing it to accumulate 200 million subscribers across Hulu, ESPN, and Disney+. In the same quarter, Netflix added only 8.3m subscribers, which missed its guidance of 8.5 million subscribers. Netflix has a total of 222 million subscribers, up less than 10% YoY compared to Disney’s. Disney+ on the other hand, grew 37% YoY. Netflix’s growth is slowing, while Disney’s is also accelerating. ​ NFLX Subscriber Growth Last 5 Years Netflix does not have the IP or the firepower to compete against Disney, and in the long run, they will lose the streaming wars. In order to continue its growth, Netflix must acquire VIAC. An all-stock transaction similar to AMD-XLNX (an arbitrage play I made in the last 6 months!) might be the best path for Netflix. Disney acquired 21st Century Fox for $71.3B (One of the Big 6- Paramount, Walt Disney, Universal, Sony, 21st Century Fox, and Warner Bros) Amazon acquired MGM Studios for $8.45B Discovery acquired WarnerMedia for $45B It is unlikely Redstone would sell VIAC, but in the event that she does, based on past acquisition prices, the buyout price for ViacomCBS would easily be in the $60-100B+ Billion range. At minimum, we’d see 2.5x upside from current prices. VIAC’s current 23B market cap is ridiculously undervalued. PlutoTV In the last twelve months, PlutoTV has seen an annual growth rate of 100% YoY in both revenue and subscribers. That’s absolutely ridiculous. At over 1B annual revenue as of Q3 2021, if valued as a separate public entity, it’d easily be valued at 5-10B market cap alone. Streaming Arm VIAC has accumulated 50m subscribers across its streaming platforms. Netflix has 220 million subscribers. At a 175B market cap, if we applied the same subscriber valuation multiple from Netflix, VIAC’s streaming arm would be worth $40B. At half the subscriber valuation multiple, VIAC’s streaming arm would be worth $20B. This would be disregarding PlutoTV, content licensing, Cable TV, and all of VIAC’s most profitable cash-flow generating assets. Positions- Approximately 5-6k in weekly and monthly calls. ​ https://preview.redd.it/5wnbewp6pqh81.png?width=2182&format=png&auto=webp&s=374eb8ff65ce615634adf5fdf0a089cf48f72139 ​ 200 shares. 10-15k in $25 2022 September, $30 Jan 23, and $45 2023 and 2024 LEAPS. What Could Go Wrong? Hedging The biggest risk for VIAC FD’s would be macro effects. The market will likely sell-off ahead of FOMC minutes release on Wednesday and will dump hard with a genuine Russian invasion of Ukraine. Personally have hedged with a combination of 5% OTM SPY and 10% OTM TQQQ puts. SQQQ calls or QQQ puts would also work. Option premiums are priced for a very large move next week, but puts will still print hard if Russia invades Ukraine. Although VIAC went up 7% last week even with Ukrainian fears and inflation issues, it will 100% dump if SPY drops 10%. This kind of earnings play needs a hedge due to current macro factors. VIAC Pure Long DD https://www.reddit.com/r/wallstreetbets/comments/oyx6tx/viac_god_tier_way_too_long_dd_all_aboard_the_p/ https://www.reddit.com/r/wallstreetbets/comments/r9sd8r/the_viacomcbs_viac_saga_part_iii_return_of_hwang/ TLDR: VIAC is valued as a dying company even though their topline will likely see at least 10% annual growth for the next two years. They’re going to post a net +10 million subscribers quarter, blow out EPS estimates, announce that they're to fully concentrate on streaming growth, and finally, attain a streaming company's valuation. Earnings and a streaming investor event are on Tuesday. Buy short-dated calls on VIAC and hedge with puts on broad market ETFs in case of market-wide issues. I expect at least a 10% move upwards from current share prices at the minimum. Disclaimer- I'm a college kid who trades options for fun.

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$VIAC- Earnings SuperPlay

bullish

ViacomCBS is primed for an incredible earnings quarter call. I'm going to try to keep this shorter than it should be by keeping this post mostly focused on VIAC as a short term earnings play, but this stock is also an incredible pure long play as well. DD for long term investors is linked at the bottom of this post.

A few numbers and charts might be slightly outdated (by a week maximum). I started working on this DD last week, so a bit of my data is old!

$VIAC Current Valuation-

ViacomCBS as of market close on February 9 is currently valued at a 23.30B market cap, 7.02 P/E, and 9.14 forward P/E, and At this valuation, the company screams value trap. Forward PE is currently being dragged down by Q4 2021 EPS estimates, but I will discuss that later in this post. VIAC is a dying company in a stagnant industry with 0 revenue growth and a limited future? Wrong.

First, let's look at their topline. VIAC's 2020 revenue was 25.03B, while their TTM 2021 revenue is 26.81B. Additionally, their current average 2022 revenue estimate is 29.29B. Low revenue growth, but certainly not a dying company deserving a P/E ratio of 7.

Now, let's look at the valuation of peers in the streaming industry below. The chart is a little bit outdated, but the numbers are approximately still the same. All streaming companies generally trade at a forward P/E generally greater than 20, excluding DISCA, which is trading at lower valuations relative to its peers due to its unfavorable merger/acquisition terms with AT&T's WarnerMedia.



There are no similar hurdles in the upcoming future for ViacomCBS. The market is simply completely discounting ViacomCBS' streaming arm and its current progress. Cable TV accounts for around 45% of VIAC's current revenue, and because CableTV provides 12-13B in revenue annually, cord-cutting concerns are a major point of worry for investors, company's executives and overall company long term health. VIAC's executives, however, clearly recognized these concerns, which is why they acquired PlutoTV in 2019 for $340 million and launched their own streaming platform in March 2021.

Since its release in March of 2021, Paramount+ has already driven Viacom to accumulate 47.4 million subscribers- 4.3m in Q3 and 6.5m in Q2 of 2021 alone. In addition, PlutoTV generated over $1B in ad revenue in 2021 and has surpassed 55m monthly active users- an incredible investment by ViacomCBS. In 2020, PlutoTV had 33m MAU's and 450m annual revenue. Its growth in the past year is astounding.

PlutoTV namely, along with Roku, and Tubi are currently the leading cable killers. Although VIAC is losing cable customers and their revenue, it's gaining them right back through PlutoTV.

Current Outlook

In 2021, this stock has been completely shafted by the implosion of Bill Hwang's fund, general bearish sentiment toward VIAC, and tax-loss harvesting. However, the stock found a bottom in late December 2021 and has been slowly climbing its way back up in 2022.





An incredible earnings report with absolutely blowout streaming numbers could initiate a large rally to at least $40 for this stock- likely way higher. The most likely scenario for said rally would be initiated by the market finally gaining faith in Viacom as a legitimate streaming company. If VIAC's next earnings report sufficiently blows expectations out of the water, this company might finally see a much-deserved streaming valuation. Even a price/earnings ratio of 15 would see VIAC doubling from its current valuation. A 10 million subscriber quarter would be a great start- and this is exactly what we'll be seeing.

VIAC will double if it's valued at a genuine streaming company. On February 15, VIAC will be announcing Q4 earnings, announcing full 2021 financial results, and hosting an investor event providing an update on Paramount's momentum and the company's content and IP . A quarter with an increase of 10 million new subscribers and a well laid out plan by VIAC executives on the future for Paramount+ would finally give VIAC the credibility it needs as a legitimate streaming play. Luckily for us, we can use Google trend data, cyclical industry trends, and look at updates from VIAC executives, which we can use to estimate subscriber growth and next quarter's bottom line.

First, we can look for Paramount+ Google Trends activity. Starting from Q4, there is a massive spike in Google user interest in Paramount+. In Q2 of 2021, Paramount+ added 6.5m subscribers, while in Q3, they added 4.3m. Based on past Google Trend activity, we are set to see a massive increase in subscribers in Q4. However, we need to dig deeper. Why has activity spiked?



T-Mobile partners with ViacomCBS.

In early November of 2021, T-Mobile partnered with Paramount+. They now offer a free year of Paramount+ to all customers with either cellular or internet plans.

In that same week, Paramount announced that they added one million new subscribers.

You know what people enjoy? Free stuff. T-Mobile has a lot of customers- over 100 million of them. Let's say 50% of those subscribers have cellular or internet plans. 5% of cellular or internet customers redeem their free Paramount+ membership last quarter. That's 2.5m subscribers alone. This estimation is generously underestimated, but you should get the idea. This partnership with T-Mobile should not be underestimated.

Based on Q3 and Q2 numbers, we can estimate that base subscriber gain (without the positive catalysts I will be discussing- like the T-mobile partnership) would've been approximately 5 million. Let's add 2.5 million subscribers from T-Mobile's partnership. We are already at 7.5 million subscribers in Q4.

Football

Next, we can look at football. Q4 of VIAC's fiscal year overlaps with NFL regular season, so we can expect a large boost in viewership from the NFL season ramping up into full swing. But that isn't all. This year's NFL season was incredible.

In the 2021 regular season, NFL viewership saw an increase of almost 10% in ratings from those in 2020, and a 6-year record in viewership at 17.1million. CBS saw a nine per cent increase for its regular season games, posting a 21.59 million average audience across its ten national game windows. Guess who streamed the most viewed game of the regular season? That's right. CBS. The Dallas Cowboys featured in five of the 2021 regular season's ten most watched games. This included the Thanksgiving matchup against the Las Vegas Raiders on CBS, which became the most-watched NFL regular season game on any network in 31 years, drawing in 40.8 million viewers. This was only the second regular season game to eclipse the 40 million mark since 1988. And guess where CBS NFL games are available? That's right. Paramount+.

But the NFL is just part of the story. CBS has the streaming rights for the SEC. Viewership last season was record breaking, and for the championship game last season it peaked at almost 18m viewers. It wasn't just the championship game though- viewership for the SEC was at an all time high, especially on CBS. And obviously, a portion of these viewers signing up for the game to be streamed on Paramount+. Google trend data is available below.



Since Paramount+ was released in March of 2021, until Q4, it has barely seen any growth from true, regular season football. Let's estimate that NFL and SEC streaming contributed to a 1 million subscriber gain for Paramount+. Q4's net subscription gain is already at 8.5 million.

New Shows- Yellowstone and Kingstown

In Q4, Paramount+ also had two new shows, 1883, and Kingstown, which both debuted on Paramount+, the former of which drew record viewers. Supporting the company's claim for 1883‘s big debut on Paramount+ over the first 24 hours of release is the delivery of the premiere's airing behind Yellowstone on Paramount Network. The promotional linear telecast drew strong 4.9 million total viewers in Live+Same Day, according to Nielsen, making it the biggest new series premiere on cable since 2015 (AMC's Into the Badlands, which followed juggernaut The Walking Dead at the height of its ratings supremacy).



For comparison, another new Taylor Sheridan drama series for Paramount+, The Mayor Of Kingstown, logged 2.6 million viewers for the special airing behind Yellowstone (7.5 million) on Paramount+ for a 35% retention. (Into the Badlands premiere's TWD lead-in retention was 50%).



Q4 of every fiscal year always sees a massive increase in subscriber growth. For reference, Disney added 11.8 million subs in its most recent quarterly earnings report last week, yet in the quarter before, it had only added 2 million subs. Netflix sees a similar effect (its quarterly subscriber growth chart is available near the bottom of this post). Netflix gained 4.4 million subscribers in Q3 of 2021, and 8.3 million in Q4. I'm not totally sure why there is always such a massive spike in subscriber growth in the last quarter of every year, but I will attribute this cyclical effect to Christmas gift-giving and other holiday boosts.

Let's make another conservative estimation and say that Kingstown, Yellowstone, and cyclical seasonal factors gives Paramount+ a 1.5 million subscriber addition. We are not set for a 10 million subscriber growth quarter for just Paramount+. Awesome

November Update-

ViacomCBS's Bob Bakish also updated us in November on Paramount's growth. In the current fourth quarter, total streaming revenue is crossing an annual run rate of $5 billion, Bakish shared, adding: “We are getting somewhere significant pretty quickly.” ViacomCBS said in February that it expects to grow its streaming revenue to $7 billion by 2024, up from a then-current run rate of $3.6 billion.

What's this mean? 20% streaming revenue growth QoQ at the very minimum. Streaming revenue in Q3 of 2021 was 1.08B. At 5B ARR, we are looking at 1.25B streaming revenue in Q4. With the current pipeline of content that is coming to Paramount+ (Halo Movie, Scream, Sonic 2, etc.), I wouldn't be surprised if VIAC is able to achieve $9-10B streaming revenue by the end of 2024. CableTV is responsible for around $12-13B revenue, based on VIAC's current declining CableTV revenues, it'll still be providing at least $10B revenue in 2024. VIAC will continue to see top-line growth for the next 5 years.

EPS

Now, let's talk about EPS estimates for Q4. The EPS estimate for Q4 is at an all time low of 0.45. First of all, that's fucking ridiculous, and VIAC was definitely going to beat estimates regardless of any special factors. Wall street analysts are suddenly expecting the bottom line to decrease by 40% just because they would be investing more into streaming? That's ridiculous.



In the last 5 years, VIAC has never had a single quarter where its reported EPS was below 0.75. 0.45 EPS is ridiculous.

However, VIAC is guaranteed to smash this 0.45 EPS estimate out of the park. How do I know this? Last November, they announced their Studio City Lot in LA for 1.85B, and the deal was expected to close by the year's end. With how ridiculously inflated LA real estate is these days, we can definitely expect that the proceeds were significantly above book value. What does this mean? Net income for Q4 will be significantly higher than expected, especially with analyst estimates already so low. In the last 3 months, the EPS estimate for VIAC has only constantly been brought further and further down.

Q3 Guidance: Total company revenue grew 13% year-over-year to $6.6 billion. Adjusted OIBDA fell three percent to one billion as we continue to ramp up programming and production spend coming out of COVID and increase our investment in streaming. Adjusted diluted EPS was $0.76. Adjusted free cash flow was a use of $187 million in the quarter, reflecting a ramp in programming spend, including our investment in streaming. Adjusted free cash flow in Q4 should reflect a continuation of this trend.

Less FCF. Certainly. A 40% drop? Unwarranted. 0.60 EPS is far more reasonable.

Let's make a small estimate for EPS if we factor the Studio City Lot. The Studio City Lot was sold for $1.85B and auctioned off to the highest bidder. As of September 30, 2021, VIAC had an estimated $1.809B worth of property and equipment on its balance sheet. Let's estimate that The Studio City Lot had a book value of $1B - likely far higher than it should be. If we disregard taxes, the land sale will result in an $850 million dollar boost in earnings in Q4. Based on VIAC's outstanding shares (between 600-650 million), we can estimate that this one-time land sale will cause an EPS boost of $1.31/share, disregarding taxes. That's 3x higher than current EPS estimates, and that's disregarding VIAC's true bottom line. EPS will be a blowout. Amazon mooned on an EPS blowout thanks to their Rivian gains. I think we see a similar effect here.

VIAC literally sold their Studio City Lot for $50 million higher than the book value of all of their property and equipment listed on their Q3 balance sheet.

TTM and FTM EPS

VIAC Q3 2021 Balance Sheet- Property and Equipment Valued at 1.809B

Licensing and Possible Acquisition

The most powerful players in the streaming wars are Netflix, Disney(+Hulu & ESPN), Amazon, and HBO & Discovery once they merge. A quarter of ALL Amazon, Peacock, and Netflix content is licensed from VIAC.

Portion of NFLX content Licensed from VIAC

The streaming wars are just beginning, and in this industry, content is king. And guess who owns a veritable mountain of IP? ViacomCBS. As Disney and HBO take back content rights from rivals to improve their own streaming libraries, Viacom's own licensed IP becomes more valuable and even more important when it comes to strengthening content selection and variety. Their leverage has grown ever stronger at the negotiations table when it comes to licensing content to other providers and it will continue to improve in the next few years. We can expect even higher content licensing revenue to continuously increase in the future.

“Content licensing is an important business but … our strategy is clearly evolving, particularly with Paramount+,” Bakish said. The company has a library of 4,000 films, 140,000 TV episodes and current production of 150 series globally. “We can't keep all that for ourselves. It doesn't make sense. It's too much,” he said.

Although Bob has stated otherwise last year, the threat of VIAC pulling a Disney/Warnermedia hangs over Amazon, Hulu, and Netflix like a dangling sword. VIAC could decide to go all in on its streaming platform, pull its content from its rival platforms, and go all-in on Paramount+. This would be a massive hit for VIAC's revenue and earnings, but the threat remains. This threat, however, is what makes VIAC so valuable if acquired by Netflix, Amazon, or even Apple (lol).

An acquisition by Netflix or Amazon would allow it to pull VIAC's content from the other platform, dealing a massive blow to a competitor. The acquiring company would gain an enormous library of content, streaming rights (CBS NFL rights are incredibly valuable), and Paramount Studios, whose recent movies include Jackass Forever, Scream, Clifford the Big Red Dog (lol), Sonic the HedgeHog, The Tomorrow War, and A Quiet Place.

The most recent quarterly earnings reports of both Disney and Netflix have shown deep, systematic problems with Netflix. It's losing the streaming war. In Q4, Disney added 11.8 million subscribers, allowing it to accumulate 200 million subscribers across Hulu, ESPN, and Disney+. In the same quarter, Netflix added only 8.3m subscribers, which missed its guidance of 8.5 million subscribers. Netflix has a total of 222 million subscribers, up less than 10% YoY compared to Disney's. Disney+ on the other hand, grew 37% YoY. Netflix's growth is slowing, while Disney's is also accelerating.

NFLX Subscriber Growth Last 5 Years

Netflix does not have the IP or the firepower to compete against Disney, and in the long run, they will lose the streaming wars. In order to continue its growth, Netflix must acquire VIAC. An all-stock transaction similar to AMD-XLNX (an arbitrage play I made in the last 6 months!) might be the best path for Netflix.

Disney acquired 21st Century Fox for $71.3B (One of the Big 6- Paramount, Walt Disney, Universal, Sony, 21st Century Fox, and Warner Bros)

Amazon acquired MGM Studios for $8.45B

Discovery acquired WarnerMedia for $45B

It is unlikely Redstone would sell VIAC, but in the event that she does, based on past acquisition prices, the buyout price for ViacomCBS would easily be in the $60-100B+ Billion range. At minimum, we'd see 2.5x upside from current prices. VIAC's current 23B market cap is ridiculously undervalued.

PlutoTV

In the last twelve months, PlutoTV has seen an annual growth rate of 100% YoY in both revenue and subscribers. That's absolutely ridiculous. At over 1B annual revenue as of Q3 2021, if valued as a separate public entity, it'd easily be valued at 5-10B market cap alone.

Streaming Arm

VIAC has accumulated 50m subscribers across its streaming platforms. Netflix has 220 million subscribers. At a 175B market cap, if we applied the same subscriber valuation multiple from Netflix, VIAC's streaming arm would be worth $40B. At half the subscriber valuation multiple, VIAC's streaming arm would be worth $20B. This would be disregarding PlutoTV, content licensing, Cable TV, and all of VIAC's most profitable cash-flow generating assets.

Positions- Approximately 5-6k in weekly and monthly calls.



200 shares.

10-15k in $25 2022 September, $30 Jan 23, and $45 2023 and 2024 LEAPS.

What Could Go Wrong? Hedging

The biggest risk for VIAC FD's would be macro effects. The market will likely sell-off ahead of FOMC minutes release on Wednesday and will dump hard with a genuine Russian invasion of Ukraine. Personally have hedged with a combination of 5% OTM SPY and 10% OTM TQQQ puts. SQQQ calls or QQQ puts would also work. Option premiums are priced for a very large move next week, but puts will still print hard if Russia invades Ukraine. Although VIAC went up 7% last week even with Ukrainian fears and inflation issues, it will 100% dump if SPY drops 10%. This kind of earnings play needs a hedge due to current macro factors.

VIAC Pure Long DD

https://www.reddit.com/r/wallstreetbets/comments/oyx6tx/viac_god_tier_way_too_long_dd_all_aboard_the_p/

https://www.reddit.com/r/wallstreetbets/comments/r9sd8r/the_viacomcbs_viac_saga_part_iii_return_of_hwang/

TLDR: VIAC is valued as a dying company even though their topline will likely see at least 10% annual growth for the next two years. They're going to post a net +10 million subscribers quarter, blow out EPS estimates, announce that they're to fully concentrate on streaming growth, and finally, attain a streaming company's valuation. Earnings and a streaming investor event are on Tuesday. Buy short-dated calls on VIAC and hedge with puts on broad market ETFs in case of market-wide issues. I expect at least a 10% move upwards from current share prices at the minimum.

Disclaimer- I'm a college kid who trades options for fun.

read-time
13 min
45.00
Target Price
9/ 10
Confidence
1-2 Weeks
Timeframe
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Earnings Release
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