Viacom’s stock on Tuesday tanked more than 13 percent and hit a 52-week low after reporting fiscal first-quarter earnings in line with Wall Street expectations, but weaker-than-expected revenue.
The company behind the likes of MTV, Nickelodeon, BET and Paramount Pictures before the stock market open also posted a less pronounced quarterly U.S. advertising revenue drop than expected amid improved ratings at some of its networks, which have been hurt by lower audience figures and ad sales.
Viacom’s stock as of 11:30 a.m. ET was down 13.6 percent at $ 36.15 after hitting a 52-week low of $ 35.66 earlier in the trading session.
Addressing the mixed bag of financial news, Viacom president and CEO Philippe Dauman, who recently also became executive chairman, admitted that the company had a “challenging” year, but also said it was continuing to invest in content and technology, arguing those investments were starting to show some encouraging trends.
In that context, the company also unveiled a multi-year deal to sell advertising for Snapchat, with management positioning it as an example of how the company is looking for new revenue streams and new ways to engage younger audiences. Viacom said it is the only TV company to have this sort of arrangement with Snapchat.
Messaging app Snapchat has been carrying content for Viacom’s Comedy Central and MTV networks. Under the new deal, financial details of which weren’t disclosed, Viacom will add two channels to Snapchat's "Discover" page. One will be a U.S. version of MTV, while Comedy Central will add an international channel. Viacom also said it would further invest in programming on Snapchat.
In addition to selling its advertising alongside its own content on Snapchat Discover, Viacom will also have the right to sell Snapchat's U.S. owned and operated ad inventory, which includes ads in ongoing stories such as "New York," about daily happenings in New York City, and non-partnered holiday live stories, such as "Valentine's Day," the company said. Through the partnership, Snapchat will also have access to cover Viacom's tentpole events, such as MTV's Video Music Awards, BET Experience and MTV's EMAs.
Viacom’s financials have been hit by ratings declines and related ad drops, with analysts saying the company’s younger target audience is harder to reach in the digital age. Wall Street has also been discussing Viacom’s future amid the weaker health of 92-year-old controlling shareholder Sumner Redstone, who recently became chairman emeritus after serving as executive chairman.
Dauman has been criticized by activist investor SpringOwl, while Redstone's daughter Shari opposed his adding the chairman title, citing his role in her father's estate and a trust that will one day govern Redstone’s holdings.
“Viacom and Snapchat naturally complement each other in significant ways that make us ideal partners in both content and business development," said Viacom CFO Wade Davis in announcing Tuesday’s deal. "Snapchat captures young audiences on an intimate and immersive mobile video platform while Viacom is the leader in premium long- and short-form storytelling for these same audiences. Add in Viacom's custom marketing solutions and commitment to evolve our global mobile strategy and you've got a partnership that is great for both companies, for advertisers, and is a real evolution of the marketplace."
Dauman also discussed the issues facing the company before the earnings conference call. “2015 was a challenging year operationally as we redesigned ourselves and adapted to significant industry disruption,” he said. “Our first fiscal quarter of 2016 reflected these challenges. However, our revitalized organization and our investments in content, technology and strategic innovation are now beginning to bear fruit. Although our industry continues to face headwinds, we expect our positive momentum to continue and build throughout the year.”
He also said: “As the media industry continues to evolve quickly, Viacom is generating sustainable opportunities using great new content, innovative technology, marketing and data applications, along with the benefits of our substantial footprint in key international growth markets. Our investments in new content have led to higher ratings at most of our networks, including VH1, Spike, BET, TV Land, CMT and Nick at Nite, as well as Nickelodeon, which recaptured its lead as the top network for kids 2 to 11.”
The commentary notably didn’t mention MTV, which has continued to struggle in the ratings.
Dauman also argued: “Paramount is off to a strong start in 2016, with a promising and diverse film lineup throughout the year, and our Paramount Television unit is also thriving.”
Viacom posted quarterly net earnings of $ 449 million, down 10 percent from $ 500 million in the year-ago period. Adjusted earnings per share of $ 1.18 was in line with the $ 1.18 consensus estimate by analysts and down from $ 1.29 in the year-ago quarter. Revenue fell 6 percent to $ 3.15 billion, coming in below expectations, as media networks unit revenue fell 3 percent to $ 2.57 billion and film revenue fell 15 percent to $ 612 million.
The U.S. ad revenue drop marked an improvement over the 7 percent decrease in the previous quarter and the 9 percent drop in the fiscal third quarter of 2015. “We are raising slightly our domestic advertising (from -6 percent to -5 percent), offset by lower International advertising to reflect foreign exchange headwinds,” Stifel, Nicolaus analyst Benjamin Mogil said in a recent earnings preview report. It said U.S. advertising revenue dropped 4 percent, slightly better than the roughly 5 percent decline projected by many analysts.
Domestic affiliate revenue was “substantially flat due to the impact from the timing of product available under certain distribution agreements,” Viacom said. International affiliate revenue dropped 6 percent, driven by a 9 percent unfavorable impact of foreign exchange. Excluding that impact, international affiliate revenue rose 3 percent.
Filmed entertainment revenue fell as an increase in license fees was more than offset by declines in theatrical and home entertainment revenue. Foreign exchange movements had a 3 percent unfavorable impact. Theatrical revenue decreased $ 75 million in the quarter “as carryover revenues decreased $ 46 million, principally due to an unfavorable comparison with the strong performance of Teenage Mutant Ninja Turtles in the first fiscal quarter of 2015,” Viacom said. Home entertainment revenue fell $ 77 million, “reflecting a comparison with carryover revenues from Transformers: Age of Extinction” in the year-ago period. License fees increased 25 percent, “primarily driven by the licensing of certain titles for subscription video-on-demand services and television,” Viacom said.
The film unit posted a quarterly operating loss of $ 146 million, compared to a year-ago loss of $ 60 million. Viacom’s media networks unit posted an operating profit of $ 1.06 billion, down 4 percent.
Analysts in first reactions highlighted some positive tidbits in the latest earnings report, but mostly emphasized the continuing challenges for the company.
“Viacom is entering an important period in its life,” MoffettNathanson analyst Michael Nathanson said in a first reaction. While ad trends and ratings are likely to improve, all eyes remain focused on the looming Dish affiliate fee renewal and headlines about Redstone family dynamics. The quarter provided some positive signs of momentum (domestic ad revenues) and some lingering issues (Paramount and SVOD compares).”
Guggenheim Securities analyst Michael Morris in the headline of his report said: “New Snapchat Partnership to Take Some Focus off Soft Core Revenue Trends.”
And Sanford C. Bernstein analyst Todd Juenger said in the headline of his investor note: “How Is This Not a Declining Business?” He wrote: “The glass-half-full view is domestic advertising of -4 percent was slightly better than consensus and Bernstein expectation of -5 percent. The glass-half-empty view is domestic affiliate fees were flat versus consensus +2 percent and Bernstein +7 percent (we were expecting more SVOD deals in the quarter).”
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