Viacom's Stock Falls on Tough Comps, Weak Studio Numbers


Strength at Viacom's cable channels wasn't enough to offset declines in home entertainment.

Viacom's stock is trading lower — off as much as three percent earlier today — after it reported quarterly revenue fell 5 percent, more than expected. Adjusted earnings per share were $1.02 for the quarter, just a hair above Wall Street forecasts. These numbers are particularly disappointing in light of the upside surprises at Time Warner and News Corp just yesterday.

First, the good news — CEO Philippe Dauman is bullish about advertising trends. He says that the "scatter market" for last minute ad sales is quite strong, predicting a "particularly robust Upfront" ad sales period this spring. Analysts are calling the company's 10% domestic advertising growth impressive, and on the earnings call the company guided Wall Street to expect double digit ad growth for both its domestic and international cable networks,

Cable networks are Viacom's strength — just like Time Warnerand News Corp— and the core of its business. Revenue at the division grew six percent, driven by stronger ratings at MTV. Jersey Share has powered a real turnaround at MTV, and there's hope that "Skins" will maintain that momentum. On the earnings call CEO Philippe Dauman discussed his decision to return Comedy Central shows to Hulu plus after a hiatus. He stressed that Hulu Plus, which will air Jersey Shore and some other MTV shows, makes this financially worthwhile, with its dual revenue stream — subscriptions and ads.

The movie studio faced some particularly tough comparisons to last year — it's the thorn in Dauman's side. Filmed entertainment revenue dropped sixteen percent from the year ago quarter while operating income plummeted sixty eight percent. The real problem was DVD sales, and a comparison to last year's strong sales of Transformers and Star Trek discs. And with lower DVD sales came lower licensing fees to air movies on TV. Dauman says he expects the film business to recover thanks to a slew of franchises in the works. Perhaps more importantly, comparisons to last year will simply get much easier.

Some analysts focused in on the upbeat ad news and bolstered their ratings. Barclays Capital analyst Anthony DiCelemente raised his fiscal 2011 EPS estimates and price target for the stock to $50 from $48 base. Miller Tabak's David Joyce reiterated his "Buy" rating on the stock and increased is target price to $54/$52 from $51/$46. Morgan Stanley's Benjamin Swinburne reiterated his "Equal-Weight" rating on the stock but pointed to an area of growth, writing that MTV "should continue to see ad momentum and the company expects double-digit domestic and international ad growth F2Q, roughly 200+ basis points ahead of our current 8% estimate.

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