) is a diversified media company and owns several businesses
including cable networks, broadcasting network, local TV stations,
radio, outdoor advertising and publishing. With close to $15
billion in annual revenues and $4 billion in EBITDA (earnings
before interest, taxes, depreciation and amortization), the company
commands a market valuation of close to $24 billion. This is fairly
close to our estimated valuation of $24.6 billion.
CBS has done well over the past two years. The company has grown
its EBITDA margins substantially, from close to 19% in 2009 to an
estimated 27% in 2012. During the same period, its stock price
increased by almost 500%. Let's take a look at different key
businesses of CBS and how they are driving its value.
See our complete analysis for CBS
Cable Networks ~ 25% Of CBS' Value
With close to $1.75 billion in revenues and $840 million in
EBITDA, CBS operates a successful cable networks business. It owns
Showtime Networks, CBS Sports Network, and Smithsonian Networks.
Showtime Networks consists of premium TV channels such as Showtime,
Flix and The Movie Channel. These premium TV channels offer a
variety of programming to cable and satellite subscribers in the
U.S. who pay additional monthly premium for access. Showtime
Networks tries to bring to its audience new dramas and exclusive
content which differentiates the channel from its competitors. In
addition, CBS Sports Network offers programming based on college
sports, especially athletics. CBS's cable networks make money by
charging pay-TV service providers a carriage fee on a per
subscriber basis and licensing of Showtime's original content.
Showtime, Flix and The Movie Channel have increased their
combined subscriber base from 55 million in 2007 to 73 million in
2011. Given their premium nature, this roughly 30% growth is
commendable. However, during the same period,
increased from about $1.16 billion to $1.62 billion, implying
growth of 40%. This indicates growth in subscription pricing,
content licensing as well as contribution from other networks
mentioned above. Going forward, we expect this growth to continue
as cable networks have shown strong demand and market for licensing
continues to grow driven by international expansion and
proliferation of online streaming platforms.
CBS Owned TV Stations And CBS Radio ~ 20% Of
This business essentially generates roughly $2.7 billion in
revenues and close to $950 million in EBITDA. Even though the
revenue and EBITDA contribution is relatively higher, the value
contribution is lower as we believe this business will not
experience the same growth as the cable networks.
CBS owned TV stations essentially comprise about 29 broadcast TV
stations owned by the company through CBS Television Stations
Group. These stations produce news and broadcast public affairs,
sports and other programming to serve their local markets and offer
CBS, The CW and MyNetworkTV programming and syndicated programming.
These stations earn revenue via selling advertisement slots to
advertisers. Additionally, CBS Radio operates about 130 radio
stations across the United States and offers audiences several
formats through the combination of on-air, online and new media
platforms. It broadcasts its programs (mostly) for free and charges
advertisers to advertise between these programs. Most of the
advertisements on radio are local in nature.
The company's revenue growth has been stable for the past few
years while the EBITDA margin has improved. We feel there are no
major catalysts that can drive substantial growth in this business
and therefore expect moderate growth. This growth will be driven by
the general improvement in the U.S. advertising market and CBS
Radio's focus on major markets. Total ad spending in the U.S. in
the first three quarters of 2012 grew by 2.5% over the same period
If we look at Q3 alone, this growth amounted to 7% indicating
that the ad market is picking up. This will help CBS' TV stations
and radio business as both depend almost solely on advertising.
In addition, CBS Radio has divested radio stations in the small and
medium markets and consolidated its position, which has resulted in
a loss of market share. However, CBS's strategy of focusing on
larger markets is paying off as audience share has grown at a fast
pace in top 10 markets. This is likely to drive future revenue
Broadcasting Business ~ 20% Of Value
CBS Television Network is one of the biggest broadcasting
networks in the U.S. and offers a wide variety of programs and
reaches out to a large audience. CBS programming includes news
shows such as 60 Minutes, 48 Hours Mystery as well as primetime
comedy, drama and reality shows. In addition, CW's programming
includes shows such as Gossip Girl, The Vampire Diaries and
America's Next Top Model. Both these networks make money via
advertising. The advertising rates vary significantly based on day,
time of the day, target audience for the show and prevailing demand
for TV advertising.
With close to $4.5 billion in revenues and close to $1 billion
in EBITDA, CBS' broadcasting business (which includes CBS Network
& CW Network) seems the biggest. However, unlike cable
networks, the growth trajectory of this business is likely to slow
due to rising competition from cable networks and alternative
platforms. This has affected both daytime and primetime viewership,
and despite healthy growth in ad pricing, revenue growth is likely
to remain low.
CBS TV Licensing & Other ~ 20% Of Revenues
With close to $3.3 billion in revenues and $700 million in
EBITDA, CBS' licensing and production business is certainly
meaningful. This business includes revenues earned by CBS primarily
from production and distribution of TV programming and films. The
business units involved include CBS Television Studios, CBS Studios
International, CBS Television Distribution, CBS Films and CBS
Interactive. We expect healthy revenue and profit growth for this
business in the future. In our opinion, the license fee
negotiations are based on incurred costs and the payback period. As
the production costs are increasing, CBS is bound to increase the
In addition to the above, the expansion in subscription base of
streaming companies such as Netflix, Blockbuster, Amazon, and Hulu
has opened up a lucrative option for CBS and other media companies.
These streaming companies have deeper pockets now and are able to
pay handsomely for content licensing. This trend will benefit CBS
which has been smart about producing appealing content, thus
maintaining relatively higher ratings than its competitors.
Our price estimate for CBS stands at $38.70
, implying a premium of less than 5% to the market price.
How a Company's Products Impact its Stock Price at