ViacomCBS Reports Revenue Decline, Earnings Loss After Merger

Company offers explanation and strategic update.

ViacomCBS Reports Revenue Decline

Source: ViacomCBS

Last fall, Viacom and CBS completed their merger, and it has taken a short-term toll on the company’s finances. In its fourth quarter and 2019 year-end results, ViacomCBS reports total revenue of $6.9 billion, a 3% decline over the fourth quarter of 2018. For the fourth quarter, the company also reports an operating loss of $13 million and a net earnings loss from continuing operations of $273 million, or $0.44 per diluted share.

“In less than three months since completing our merger, we have made significant progress integrating and transforming ViacomCBS. We see incredible opportunity to realize the full power of our position as one of the largest content producers and providers in the world,” said Bob Bakish, president and CEO, in a February 20 earnings report.

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“This is an exciting and valuable place to be at a time when demand for content has never been higher, and we will use our strength across genres, formats, demos and geographies to serve the largest addressable audience, on our own platforms and others,” Bakish added. “In 2020, our priorities are maximizing the power of our content, unlocking more value from our biggest revenue lines and accelerating our momentum in streaming.”

Highlights from the fourth quarter include:

  • Affiliate revenue increased 1%.
  • Advertising for Domestic Cable Networks increased 9%.
  • Content licensing revenue declined 11%.
  • Advertising was the highest grossing segment at $3.0 billion, followed by Affiliate revenue at $2.1 billion, Content Licensing at $1.3 billion, Publishing at $215 million, Theatrical at $129 million and Other at $83 million.
  • The fourth quarter included merger-related expenses.

Full year highlights include:

  • Revenue for the full year was $27.8 billion, a 2% increase over 2018.
  • Advertising revenue was the highest grossing segment, with a 2% increase, driven by 5% growth in domestic advertising sales.
  • Affiliate revenue increased 3%.
  • Content licensing revenue increased 5%.
  • Domestic streaming and digital video business, including subscription revenue and digital video advertising, generated about $1.6 billion in revenue for the year.

In 2020, the company plans to focus on three strategic areas. First, it will maximize the power of content, including investment in streaming and studio production. Second, ViacomCBS will focus on growth across its three biggest revenue lines – distribution, advertising and content licensing. Third, the company will differentiate itself through its streaming assets including free Pluto TV, Showtime OTT and CBS All Access.

Operational highlights include the following:

  • At the end of the broadcast season, CBS will be America’s most-watched network for the 12th year in a row. So far this season, it has the most top 30 regularly scheduled programs.
  • CBS is ranked #1 in daytime and late night TV.
  • The 2019-20 NFL season was the most-watched season in the last three years.
  • In January 2020, Star Trek: Picard premiered, breaking all internal records for total streams and subscriber sign-ups.

On the earnings call, Christina Spade, executive vice president and CFO for ViacomCBS, offered the following guidance:

  • The company expects to realize $250 million of a total estimated $750 million in cost synergy due to the merger.
  • Adjusted free cash flow for 2020 will range between $1.8 billion and $2 billion.
  • Excluding Super Bowl and political ad revenue, domestic advertising revenue will grow in the low-single digits.
  • Affiliate revenue will increase in the low-single digits.
  • Domestic streaming and digital video revenue will increase by 35% to 40%, assuming 16 million paid streaming subscriptions by year end.

“…ViacomCBS is well positioned to grow for the long-term. We are maximizing cash flow from our legacy businesses while driving growth in streaming and expanding our reach to new audiences,” Spade said on the earnings call. “So as we continue to execute on our growth strategy, we will grow free cash flow, capitalize on the benefits of our combination and create value for shareholders. We are poised a strong year in 2020 which will deliver growth across our unified Company and set us up for consistently strong performance in the years to come.”

 Earnings Loss After Merger

Source: CBS All Access

Insider Take:

ViacomCBS did not put up great numbers for the fourth quarter or full year 2019, but it was a time of transition as Viacom and CBS merged (again). It is no surprise that the costs ate into their earnings, but they will likely recoup those in cost synergies. Under its new CEO, the company has a clear plan for growth in 2020, and it is not relying on the same old services. It is shaking things up a big, diversifying revenue, seeking out new distribution deals and maximizing its biggest asset – content. We expect to see a few bumps along the road this year, but ultimately, ViacomCBS will succeed in producing earnings instead of losses. It is only a question of when.