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ViacomCBS headquarters in midtown Manhattan.
Mark Kauzlarich / Bloomberg
Sometimes it doesn’t take much to cool a hot broth when the impulse is over. That seems to be the case
ViacomCBS
i
Discovery
this week. Both had been in tears in recent months as investors piled on their shares they had not previously loved.
The two legacy media companies have launched new broadcast services and revealed ambitious long-term subscriber targets that have clearly excited investors, while the reopening of optimism has benefited the value stocks more broadly.
Now, some modestly negative news about each of them has caused violent setbacks in their actions.
ViacomCBS
shares (ticker: VIAC) closed more than 23% on Wednesday after the media company set a bid for its shares below its latest market price. It follows a 9% drop on Tuesday and a monstrous rise earlier: stocks had doubled since early February and had risen almost ninefold since their low in late March 2020. It was the best performance.
S&P 500
component from March 23, 2020 through Tuesday.
Shares of ViacomCBS closed above $ 100 on Monday, before falling back to $ 70.10 on Wednesday due to a strong trading volume. This is a painful decline, but only returns the shares to the place where they traded about three weeks earlier.
On Monday evening, ViacomCBS presented a revenue of nearly $ 3 billion through sales of Class B non-voting common stock and convertible preferred shares. It announced the price of those two bids on Wednesday and it appears institutional investors were unwilling to maintain the concentration of shares. The ordinary offer of 20 million shares at a price of $ 85 for savings, or 7% below its closing price of $ 91.25 on Tuesday. The company expected to raise about $ 2 billion from the sale of common stock, compared to the $ 1.7 billion it sells.
The preferred share offer at an annual return of 5.75%. The shares will become ordinary Class B shares in 2024 at a rate of between 1 and 1.2, depending on the price of the common shares at that time. ViacomCBS preferences will be marketed with the VIACP ticker.
The two ViacomCBS offerings are expected to end this weekend. They represent a dilution of less than 6% at current levels.
Shares of Discovery (DISCA) have also seen their rally roar interrupted this week. On Friday, when the record high of $ 77.27 closed, the shares had held a return of nearly 300% since early November. They fell 3.4% on Monday, 4% on Tuesday and 13.6% on Wednesday. However, these falls only erase the gains from March 3rd.
The trigger for the fall in Discovery shares may have been a downgrade of
UBS
on Tuesday. Analyst John Hodulik moved on to a sales rating, from Neutral, citing valuation issues even after a strong start for Discovery +.
“Faced with a context of changes in media consumption and declines in the linear ecosystem, we believe that Discovery’s pivot toward DTC is the right one,” Hodulik wrote. “At the same time, we expect investments for the DTC and worsening trends in the linear ecosystem to weigh [profit] medium-term growth. With shares at historic highs and the implicit valuation of the commercial broadcasting business far superior to Netflix [NFLX] multiple, we believe that the actions present an unattractive risk-reward equation at current levels. “
Hodulik estimated that the market was valuing Discovery’s streaming business about 20 times its 2023 revenue, which compares to
Netflix
(NFLX) which trades between 6 and 10 times its revenue forecast in the last three years.
For both ViacomCBS and Discovery shares, the optimism of the broadcast may have been simplified. With each week of double-digit gains, the group of investors willing to continue accumulating higher and higher valuations shrank.
“To see the positive position of ViacomCBS’ current valuation we need to have a firm belief that Paramount + will become a world-class streaming service, which we find speculative at the moment, ”wrote Credit Suisse analyst Douglas Mitchelson in a report Monday. “It’s weird that we find a fundamental investor (growth or value) that owns ViacomCBS right now, and instead we see momentum-driven investors, to quote Yogi Berra, ‘Nobody’s going anymore because it’s too crowded.’ .
They didn’t need a lot of bad news to send them to the exits.
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