With no CBS deal, it's time to sell Viacom shares, Barron's says

Viacom headquarters. Image: André-Pierre du Plessis/Flickr

Following the collapse of a potential reunion for CBS and Viacom, Barron’s is suggesting investors consider dumping Viacom shares.

The investment publication said the “challenges facing Viacom are daunting,” particularly considering the network’s target audience moving away from traditional linear TV.

“Its cable channels, including MTV and Nickelodeon, skew young, and young viewers prefer online venues like Alphabet ’s (GOOGL) YouTube, Amazon.com’s (AMZN) streaming service, and Netflix (NFLX),” Barron’s wrote, adding that Paramount might not be such a solid asset anymore for Viacom.

“Its film studio, Paramount, could fetch a hefty sum in a sale, but it has been making duds of late. Wall Street expects the studio to lose more than $600 million over the two fiscal years ending in September 2017.”

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In support of its call to action, Barron’s points out that numerous analysts downgraded Viacom after the CBS merger exploration was called off and noted that one analyst forecast Viacom’s stock falling from $35 to $30.

In contrast, analysts like Doug Mitchelson at UBS have shared a more optimistic view for Viacom, which is now officially under the watch of new CEO Bob Bakish.

“We were also impressed with Mr. Bakish in our recent conversations with him and we foresee operations normalizing over the next two quarters including affiliate revenue returning to Y/Y growth in the December quarter and overall revenue growth for the cable network division returning to growth by the March quarter, while Paramount has easy comparisons throughout CY17,” wrote Mitchelson in a research note. “While many investors will likely remain concerned regarding distribution renewals, with no new renewals up during FY17 we expect no new news on that front while operations are turning.”

While Barron’s has seemingly turned its back on Viacom, the publication is more upbeat on CBS’ future, saying that CBS, with its All Access and Showtime direct-to-consumer products, seems to “have an answer to internet viewing.”

Viacom, meanwhile, has taken tentative steps into direct-to-consumer waters with the launch earlier this year of BET Play.

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During a recent UBS investor conference, Bakish said BET Play is more learning experience than growth driver and admitted that the service likely won’t attract millions of subscribers. But he said that the launch is helping Viacom evolve its standalone OTT strategy and that Viacom could do something “more disruptive” in the OTT space down the road.