At the end of every year, I try to look back at some of the biggest mistakes to learn from them. Viacom ($VIAC) is certainly one of those. I have also received many requests on social media for an update on my thoughts and at times 280 characters can be a bit too restricting.
RECAP of $VIAC
Back in 2020, I talked about VIAC being a more value centric way to participate in the excitement around streaming. VIAC’s stock surged and reached $100 on 3/22/2021 from $37 to start the year. In hindsight, much of the move in this name was driven by relentless buying by Archegos Capital Management, a ~$20B hedge fund. VIAC’s stock quickly retraced those moves as an extremely well-timed capital raise by VIAC and the high-profile liquidation of Archegos drove VIAC’s stock down to an intraday low of $40 on 3/26.
To us, this move lower created a very interesting buying opportunity which we talked about subsequently on air. But as of year end the stock is even lower at $30. So, what happened?
Fundamentally, VIAC rev expectations have been drifting up through 2021 driven by streaming revs that have also been going higher. Given the losses in Viacom’s streaming business, this has driven EBITDA and EPS expectations lower which is natural as they gain scale in streaming. As discussed later, streaming leader Netflix (NFLX) lost money for eight years before 2020 and should be cash flow breakeven in 2021. Obviously NFLX’s stock has done well over this time driven by subscriber growth, the most watched metric. But obviously subscriber growth did not help VIAC’s stock price this year. So what happened?
In our minds, there were two main driving forces after the Archegos meltdown that drove VIAC’s stock price even lower: 1) the leaders in the streaming space started missing their subscriber expectations and 2) treasury yields started to rise this year creating a greater focus on profits versus just growth.
Driving Force 1:
Dan Niles is founder and portfolio manager for the Satori Fund, a tech-focused hedge fund.