For most media companies whose shares plummeted in the post-Internet boom, post-September 11 economy, Viacom's current market woes must be pure Schadenfreude. That's because Viacom's stock shot up 50% in the six months after the terrorist attacks as the advertising juggernaut kept hitting its financial targets. Today, however, as its peers revive, Viacom (VIA) is the industry's laggard, down 2% in the past 18 months, hovering around $40 per share.
So as advertisers begin to spend more in the economic recovery, why aren't investors warming up to the one media company that stands to benefit most? Both Viacom Chairman Sumner Redstone and President Mel Karmazin say their company is being unfairly punished for having had such a hot streak. "Our local businesses -- TV, radio, and outdoor -- weren't there in the fourth quarter, and we disappointed Wall Street," says Redstone. "But all the reasons for discounting our stock are gone."
DOESN'T ADD UP. Indeed, a growing number of analysts are predicting a robust first quarter for Viacom, which is set to report its results on Apr. 22. Merrill Lynch & Co. analyst Jessica Reif Cohen wrote in an Apr. 2 report that Viacom's first-quarter report will "mark an inflection point for the company's businesses and investor sentiment." Cohen is projecting a 12-month share-price target of $53.
Still, Viacom's dependence on advertising for the bulk of its revenues makes some investors skittish. Gordon Crawford of Capital Research & Management slashed his position in Viacom by tens of millions of shares recently, telling Redstone he didn't believe in the "ad recovery," the chairman recalls. But Redstone is confident Crawford will be back after he sees Viacom's latest performance. Karmazin is set to meet with the media investor in May.
And even though Viacom has been skewered by politicians and others for the Janet Jackson Super Bowl halftime incident on its CBS network and for charges of indecency against its Infinity Broadcasting star Howard Stern, the hoopla hasn't bothered most investors. "All that was beyond the control of Karmazin and Redstone," says Lawrence Haverty Jr., a senior vice-president of Viacom shareholder State Street Research. "And [CBS Chief] Les Moonves is at the top of his game."
"PRETTY DARN GOOD." For Henry Ellenbogen, an analyst at Viacom shareholder T. Rowe Price, "those things didn't move the needle one way or another." Both investors believe the company's trouble spots -- Infinity and Paramount -- will show better results in 2004. Add in strong performances at CBS and Viacom's bevy of cable channels, including MTV, Nickelodeon, and Comedy Central, and the stock should get a boost, they say.
Of course, beyond the numbers, another overhang on Viacom shares is the frequent reports of infighting between Karmazin and Redstone. Karmazin says the perceptions frustrate him. "I want to be at Viacom," he says. "Sumner is about to turn 81, and I know he's not going to change. And that's fine. The company has done pretty darn good under him. Is there anything that has surprised me from when I came four years ago until now? Zero."
Karmazin's big hope for the rest of the year is that investors pay less attention to what he sees as the peripherals at Viacom and more on the essentials -- like generating lots of free cash flow. That could go a long way to putting an end to all that Schadenfreude.
By Tom Lowry in New York