Pluto TV: A Powerful Platform for ViacomCBS

05/21/2020 5:00 am EST

Focus: STOCKS

Jason Clark

Contributing Editor, The Prudent Speculator

Media conglomerate ViacomCBS (VIAC) produced earnings in Q1 that beat consensus analyst estimates by more than 15% ($1.13 vs. $0.98), reports Jason Clark, a leading value investing expert and contributing editor to The Prudent Speculator.

Compensating for revenue from Super Bowl in 2019 and the canceled NCAA March Madness earlier this year, overall advertising was up 4% due to an additional NFL playoff game and political spots, which is expected to rally in the back half of the year.

Both free and pay streaming platforms grew users/subscribers at solid rates in the quarter. Management has intentions to use its Pluto TV platform as a launching pad to integrate content across the business as it transitions to streaming.

CEO and President Bob Bakish elaborated, “The Pluto TV platform is powerful, and the world is quickly embracing it. But you shouldn’t just think of it as a standalone service. It is also key to our integrated streaming strategy, where it will serve as an important complement to and funnel for our pay services."

Pluto domestic monthly active users grew 55% year-over-year to more than 24 million as of quarter end, while domestic pay streaming offerings grew 50% year-over-year, with subscribers totaling 13.5 million at the end of the quarter, driven by original hit programming from CBS All Access and Showtime OTT.

New agreements were struck with the NFL, Verizon (VZ) and YoutubeTV. CBS reached a deal with the NFL to broadcast one additional wildcard game in 2021 as part of the NFL’s playoff expansion with a live stream on CBS All Access and a separately produced telecast on Nickelodeon, tailored for a younger audience.

The first true combined company affiliate deal spanning pay and connected tv and mobile was inked with Verizon, which is expected to be an additional launching point for Pluto.

The deal with YoutubeTV not only renews current agreements for Showtime and CBS but will add several of Viacom’s Cable Networks to the platform, highlighting a benefit of combing the two firms.

While the trends toward video on demand may pressure network ad revenue over time and gradual cord cutting is likely to result in TV subscriber declines from Viacom networks, we think VIAC has made solid strides in bringing the current and potential new content offerings from the combined firm toward direct-to-consumer subscription platforms.

In addition, recent deals with CBS highlight the value of the network’s reach to almost all households in the U.S. Despite the bounce in recent trading, the shares still trade at under 5 times expected 2020 earnings and yield over 5%. Of course, the balance sheet sports a massive amount of debt, so VIAC is definitely a more volatile holding. 

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