Viacom in Great Position to Benefit from Improving Cable Ad Market

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Viacom ( VIA ) competes with other media and broadcasting companies like Time Warner ( TWX ), News Corp ( NWS ) and Disney ( DIS ) in the media and entertainment business. Viacom recently released its fiscal Q1 2011 earnings (quarter ended December 31, 2010) and we have increased our price estimate based on improvements observed in box office and media networks revenues. Our price estimate for Viacom stands at $58.36 , which is at a premium to market price.


See our full analysis and $58.36 price estimate for Viacom

One of the issues that Viacom faced in 2010 was a decline in home entertainment revenues derived from low DVD sales. We have previously examined these concerns, which continued into the most recent quarter, and commented that these low DVD sales may be temporary. Further, positive developments in the advertising market are causing improvement in the amount of ad dollars being poured into cable networks.

Cable Networks Getting Advertisement Attention

Viacom's CEO has previously indicated that there is ample opportunity for cable channels to grow their advertisement revenues by taking advantage of increased interest from marketers. For Viacom in particular, the popularity of programs like Jersey Shore will directly attract more ad revenues, as we've previously discussed ( The "Situation" for Viacom's Stock From Jersey Shore's Success ).

As advertising revenues recover, many advertisers will look to target younger audiences through cable channels like Viacom's MTV. Advertisers like American Express, which has traditionally placed ads on broadcast networks, are also looking to reach cable audiences.

One Viacom competitor, Time Warner, recently released earnings that indicated improving ad trends for cable channels. While this is partially due to general economic and ad market improvement, we believe Viacom has a particular edge. Viacom's operations are cable-focused, whereas competitors often operate a mixed media model of both cable and broadcast networks. If the recent ad revenue improvement for cable channels is actually a result of ad dollars shifting from broadcast to cable networks, Viacom stands to see greater benefit than some of its competitors.

The modifiable chart above illustrates how changes to MTV ad pricing affects Viacom's stock value.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: DIS , NWS , TWX , VIA

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