ViacomCBS Inc. (VIAC) and News Corporation (NWS - Get Rating) are two multinational mass media conglomerates that operate worldwide. While VIAC operates through TV Entertainment, Cable Networks, and Filmed Entertainment segments, NWS operates through six segments–Digital Real Estate Services, Subscription Video Services, Dow Jones, Book Publishing, News Media, and Other.

With many live music concerts and movie theaters closed in accordance with COVID-19 restrictions, there has been a massive surge in in-home entertainment and media consumption. While large scale vaccine deployment and a gradual reopening of the global economy likely means more consumers will venture out of their homes and seek outdoor entertainment, demand for fresh premium content and live streaming should continue to increase, with mega players investing heavily to produce their own differentiated content. We think this  trend should benefit leading media platforms VIAC and NWS.

VIAC has gained 713.3% over the past year, surpassing NWS’ 188.5% returns. In terms of their  past-month performance, VIAC is the clear winner with 47.2% gains versus NWS’ 8.8% returns. However, in terms of other financial metrics, NWS appears to be a better investment bet. Let’s take a closer look.

Latest Movements

On March 16, NWS entered  a multi-year agreement to offer millions of Facebook users in Australia access to  news and information through its Facebook (FB) News product. NWS believes  this partnership will  have a meaningful impact on its  Australian news business and solidify its  position in the country.

Last month, the company entered  a historic multi-year partnership agreement with Google (GOOG) to provide premium content from its publication sites, such as The Wall Street Journal, Barron’s, MarketWatch, the New York Post, and others. The deal also involves the development of a subscription platform and the sharing of ad revenue via Google’s ad technology services.

This month,  VIAC announced offerings of its Class B common stock and Mandatory Convertible Preferred Stock. The company plans to use the  proceeds from the offerings for general corporate purposes, including investments in streaming services.

Also this month, VIAC and MTV Entertainment Group inked  a multi-year partnership with Raedio to provide library catalogue access and original music to VIAC’s audiences. This unique collaboration will diversify the company’s portfolio, while creating opportunities for up-and-coming artists to have their work featured across VIAC’s platforms.

Recent Financial Results

In the fiscal second quarter, ended December 31, 2020, NWS’ digital real estate services revenue increased 15% year-over-year to $339 million. Its ebitda  from  book publishing has risen 65% versus the same period last year to $104 million, while its net income has grown  171.8% from its  year-ago value to $231 million. NWS’ EPS rose 160% year-over-year to $0.39 over this period.

VIAC’s global streaming and digital video revenue increased more than 71% year-over-year to $888 million for the fourth quarter, ended December 31, 2020. This was driven primarily by growth in its streaming subscription and streaming advertising revenue. Its non-GAAP adjusted net earnings grew 13.2% year-over-year to $645 million. Also, the company’s non-GAAP EPS was $1.04 for the quarter, up 13% from the same period last year.

Past and Expected Financial Performance

NWS’s total assets and levered free cash flow have grown at a CAGR of 1.7% and 19.1%, respectively, over the past three years. In comparison, the CAGR of VIAC’s total assets and levered free cash flow were 36.2% and 1.4%, respectively, over this period. While NWS’s EBITDA has increased at a CAGR of 6.8% over the past three years, VIAC’s ebitda has  declined 5.5%.

Analysts expect NWS’s revenue to increase 2.5% in fiscal 2022. Its EPS is expected to grow 142.9% in the current year, and 25.9% next year. In comparison,  VIAC’s consensus revenue is estimated to increase 3% in fiscal 2022. The  Street expects the company’s EPS to increase 5.1% next year.

Profitability      

VIAC’s trailing-12-month revenue is almost three times NWS’. But NWS is more profitable with a gross profit margin of 47.3% versus VIAC’s 40.7%.

However, VIAC’s net income margin of 9.6% compares favorably with NWS’ negative returns.

Valuation

In terms of trailing-12-month price/sales, VIAC is currently trading at 2.37x, which is 28.8% higher than NWS’ 1.84x. Also, its trailing-12-month ev/sales of 3.16x is 55.7% higher than NWS’s 2.03x. VIAC is also more expensive in terms of trailing-12-month price/cash flow (26.29x vs 15.06x).

So, NWS is the more affordable stock.

The Winner

While VIAC has gained significant market share in the global streaming segment, NWS is rapidly expanding its subscription and streaming segment. We think NWS’ superior financials, earnings growth, and relatively lower valuation make it a better investment option currently.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to learn about the other top-rated stocks in the Entertainment – Media Producers industry.

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VIAC shares were trading at $94.67 per share on Tuesday afternoon, down $5.67 (-5.65%). Year-to-date, VIAC has gained 154.79%, versus a 4.83% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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