So advertising can still get it done, apparently.
That’s a surprise to me, frankly. To think that a company like Viacom, Inc. (NASDAQ:VIAB) can still see growth in the ad sales of one of its – admittedly flagship – cable networks in this age of cash-for-content is a confusing sign.
All the recent data indicates that consumers are moving away from ad-supported media, yet still Nickelodeon – which is owned by Viacom, Inc. (NASDAQ:VIAB)– saw ad revenue grow 7% year-over-year. That, in the face of analyst predictions that sales would drop 1%, is enough to boost Viacom a bit in the markets – nearly 3% in one day.
Viacom – investment worthy?
| 12 month growth | P/E | EPS | Div. Yield | Net Margin |
| 39.1% | 15.5 | 4.24 | 1.7% | 17.2% |
Look, Viacom is diverse. It’s more than just one cable channel; it’s a lot of them, and a big chunk of the company also makes content for distribution. It’s a large firm with many revenue streams. Still, the fact that the company can make some money – instead of losing it – on a kids network is an interesting development.
Everything about the company screams investment worthy – the growth, dividend, EPS and margin are all where you’d want them to be for the industry. Even the P/E of about 15.5 just shows that others think it’s worth investing in, even if they haven’t gone overboard about it.
Most interesting of all, the world seems to think that Viacom, Inc. (NASDAQ:VIAB) can keep it up even in the face of streaming. That’s the real challenge. Can traditional advertising survive in the face of people being willing to pay directly for content that doesn’t include ads? It’s only one data point, but the Viacom news indicates that there’s an opportunity to do so.
Streaming dreaming
The issue confronting Viacom, Inc. (NASDAQ:VIAB) is whether the company will be able to negotiate its deal with Netflix, Inc. (NASDAQ:NFLX) .
Netflix
| 12 month growth | P/E | EPS | Div. Yield | Net Margin |
| 154.2% | 510.5 | 0.42 | n/a | 0.5% |
The deal that Viacom has with Netflix is set to expire this month. That’s a significant cash-blow to Viacom if the firm can’t come to some terms. Viacom says that it expects content licensing to grow by 10% this year, while Netflix, Inc. (NASDAQ:NFLX) thinks it’ll pay the same amount when a deal is reached.
Those are direct comparisons, as Viacom, Inc. (NASDAQ:VIAB) licenses to more than just Netflix and Netflix is thinking of just licensing some of the content and so forth. Still, it indicates that there won’t be a boost in revenue from Netflix, Inc. (NASDAQ:NFLX) unless something gives.
Which Netflix doesn’t want to happen. It’s amazing that the firm is profitable, yet there it is. I like Netflix as an investment, but I’m concerned about the high growth and P/E. Putting your money in Netflix, Inc. is still a risky move, not only for the high valuation, but because the streaming industry is still growing and changing. It means that money placed in Netflix – or any streaming company – is hideously vulnerable to industry risk. Only put the 5% of your portfolio set aside for risky plays into Netflix, not the 60% that’s allocated to steady investments.
On the flip side of this equation is the deal Viacom has with Amazon.com, Inc. (NASDAQ:AMZN). Last February, Amazon and Viacom announced a licensing deal wherein Amazon Prime members got access to Viacom’s TV content – including stuff from Nickelodeon, MTV and other cable channels – as a part of their membership. It’s a good deal for consumers.
Amazon: no-fly zone
| 12 Month Growth | P/E | EPS | Div Yield | Net Margin |
| 9.4% | n/a | -0.20 | n/a | 0.2% |
Let’s get this in the clear: I love Amazon.com, Inc. (NASDAQ:AMZN) Prime and the rest of Amazon’s streaming service. The business model, where an annual subscription payment gets you access to a lot of content mirrors, is what Netflix is doing. However, there’s also the a la carte video rental service, where customers can just see a movie once for $2 or so. The combination of the two offerings is well done, easy to use and cheap enough to make useful to the average household. I can’t say enough about it.
However, that might be the only thing I like about Amazon.com, Inc. (NASDAQ:AMZN) as a company. I think the shares are overvalued and unlikely to justify an investment over time. The company has been making it with investment dollars and low – or no – profitability for too long to keep it up all that much longer.
I think it’ll have trouble if someone else comes along and enters the sales market with a significant (monetary) commitment. Given all those things – and its own prediction that it might make $10 million or lose $340 million next quarter – makes Amazon a strict no-fly zone for investors.
Streaming the future
In the end, I think Viacom, Inc. (NASDAQ:VIAB)’s spike in ad revenue from Nickelodeon is a helper, not a game changer. Streaming – though still a developing thing – is clearly the coming thing. How Viacom adapts to it will indicate the company’s long-term profit potential. Watch for that, and see where it goes after you put your money into it. It’s worth an investment.
Good luck!
The article A Nick in Time: Viacom, Ads and Streaming originally appeared on Fool.com is written by Nate Wooley.
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