ViacomCBS down 20% after Q4 report: ‘this is not a broken story’

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Shares of ViacomCBS Inc (NASDAQ: VIAC) are down 20% after its Q4 earnings came in significantly below Street estimates. The mass media company also renamed itself “Paramount Global” and updated its streaming strategy on Tuesday.

Lebenthal’s take on the financial and strategy update

Despite the sharp sell-off, Cerity Partners’ Jim Lebenthal says he would cling to this name because subscriber growth continues to look pleasant, and that’s what matters the most to him. On CNBC’s “Halftime Report”, he said:

Subscriber additions were well above expectations. They raised guidance for subs and streaming revenues by 50%. By 2024, they’re aiming 100 million subscribers delivering $9.0 billion in revenue. Versus Netflix on a per sub, that would mean $85 billion market cap, roughly 5 times of what it is today.

The financial and strategy update also had BofA Securities’ Jessica Reif Ehrlich downgrade the stock to ‘neutral’. She also slashed her price target on VIAC to $39 from $53.

Lebenthal compares Paramount Global to Netflix

According to Lebenthal, Paramount is growing at a faster pace compared to Netflix, and its content is also comparable to the latter’s.

The multinational entertainment conglomerate expects to double its subs count over the next two years. Lebenthal agreed that Paramount will have to increase its spend by three-fold to accomplish that goal but said:

They’ve got the money for it. They’ve got $6.3 billion in cash. They did $1.0 billion in FCF last year. They’ll be FCF positive in each of the next two years. This is not a broken story. So far, they’ve exceeded all guidance for subscriber growth. Why would I start doubting them now just because the stock is down?

Lebenthal treated the sell-off on Wednesday as a buying opportunity and added to his position in VIAC. The stock now trades at a PE multiple of 5.65.

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