Morningstar | CBS Posts Mixed 1Q; Retrans and Reverse Comp Growth Remains Impressive
CBS started 2019 with a mixed first quarter as revenue missed consensus expectations while EBITDA met the Street projections. The top line miss for the second quarter in a row was disappointing, but we were impressed by the continued growth in affiliate fees and subscription revenue at the entertainment segment. The firm’s long-term focus on growing its retransmission and reverse compensation revenue continues to pay off. We are maintaining our narrow moat rating and $71 fair value estimate for CBS.Revenue grew 11% year over year to $4.2 billion as the firm benefited from broadcasting Super Bowl LIII in the quarter. Entertainment revenue improved by 15% year over year to $3.2 billion as the Super Bowl boosted advertising by 19%. Affiliate and subscription fees improved by 26% as retransmission, reverse compensation, and OTT pay TV affiliate fee revenue improved by 20%. Cable revenue improved by just 3% year over year as the domestic licensing for Dexter was sold a year ago. Local media benefited from ad spending around the Super Bowl, which drove 10% revenue growth. Adjusted operating margin fell to 19.0% versus 20.8% a year ago as revenue growth in high-margin areas such as retrans and reverse comp was more than offset by the increased content spending at both CBS and Showtime and the cost of the rights to the Super Bowl.
Acting CEO Joe Ianniello recently extended his contract to run though the end of 2019. Given the potential reunification of CBS with Viacom in 2020 if not sooner, we think that it’s likely Ianniello will be asked to extend his contract again through 2020. We believe that it would be difficult for the board to find and hire a more qualified CEO candidate than Ianniello with the specter of a short-term tenure. We continue to think that Viacom CEO Bob Bakish remains the preferred choice of the Redstone family to lead a combined CBS/Viacom.
CBS is a mass media company, which operates the following segments: Entertainment, which is consists of the CBS Television Network, CBS Television Studios, CBS Global Distribution Group, Network 10, CBS Interactive, CBS Sports Network, and CBS Films as well as the company's digital streaming services CBS All Access and CBSN; Cable Networks, which consists of Showtime Networks and its digital subscription streaming offering, and Smithsonian Networks; Publishing, which consists of Simon & Schuster's consumer book publishing business with imprints such as Simon & Schuster, Pocket Books, Scribner and Atria Books; and Local Media, which consists of CBS Television Stations and CBS Local Digital Media.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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