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Are Viacom Investors Too Focused on MTV?


Sure, Lady Gaga, Chris Brown and Jay Z make headlines, but are Viacom (VIA) investors too focused on MTV?

The folks at Ariel Investments think so. MTV accounts for just 13% of Ariel’s estimate of Viacom’s value, according to Ariel’s analysis of Viacom , released on Nov. 13. (Viacom is a holding in the Ariel Appreciation Fund.)

And Viacom’s filmed entertainment business “also receives a disproportionate amount of attention,” Ariel says. That unit, which includes DVDs, generates 40% of the company’s revenues, but it accounts for only 4% of profits because of its low margins. “Investors focus on the near-term headwinds of declining DVD sales and a crowded film production industry, because the output of this segment—glamorous movies—is very visible, even though not highly profitable,” Ariel says.

Ariel says it started buying Viacom in mid-July at $20.83.

Despite the stock’s increase, we believe the stock still has substantial upside opportunity. As of September 30, 2009, shares traded at $28.04, a 22% discount to our private market value of $35.76

Now Viacom is trading around $32. Do you think it still has room to rock and roll?


The Aging of Abercrombie & Fitch
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