Buoyed by higher revenues, increased margins and continuous
share repurchases,
Viacom Inc.
(
VIAB
) easily outpaced the Zacks Consensus Estimates in the second
quarter of fiscal 2012. Revenue from the company's cable network
fees and digital licensing of TV programs and movies increased
significantly. An improving U.S. economy together with Viacom's
disciplined management team continue to make us optimistic about
the company's future growth prospects.
However, advertising revenue remains more or less flat in the
previous quarter despite a sound ad-spending atmosphere, primarily
resulting from serious concern regarding the weak viewership rating
of Viacom's flagship channel Nickelodeon. Similarly, customers'
responses to new box-office releases of Paramount Pictures were
lukewarm. Despite this, effective cost control helped the company
to raise operating margin of this segment. We expect Paramount to
perform much better in the future reporting quarters as the company
is gradually revamping this segment.
Viacom immensely benefits from its agreement to disribute
digital content to online video streaming companies, such as
Netflix Inc.
(
NFLX
) and Hulu. Management is hopeful that it will able to expand its
digital content distribution deals, both in the U.S. and
internationally in the near future. Viacom also entered into a
similar kind of agreement with
Amazon.Com
(
AMZN
).
Nevertheless, the cable TV industry in the U.S. is highly
matured and saturated. Viacom's flagship cable channels are already
distributed and therefore chances are much limited to increase
revenue by enlarging distribution channels. This reflects the
company's need to sequentially improve its cable channels ratings
to boost its top line. Simultaneously, Viacom must diversify its
geographic presence in order to compensate the saturated domestic
market.
We reiterate our Neutral recommendation on Viacom.
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