Viacom Remains Neutral

Viacom Inc. (VIA.B) reported excellent financial results for the fourth quarter of fiscal 2011. Both top and bottom line were well ahead of the Zacks Consensus Estimates. Viacom enjoys strong brand value with respect to its several cable TV channels.

In the previous quarter, most of the company’s cable TV networks posted solid performmance as a result of considerable increase in ratings. In the fourth quarter of fiscal 2011, both domestic and worldwide advertising revenue grew 7% year over year.

The Filmed Entertainment segment revenue was up 13% in the previous quarter mainly due to enormous global success of its movie “Transformers: Dark of the Moon”, which had done more than $1.2 billion business.

In the previous quarter, Viacom immensely benefitted from its agreement to disribute digital contents to online video streaming companies, such as Netflix and Hulu. These business generates very high margin, around 75%, which facilitated the company to significantly improve its bottom line.

Management is hopeful that it will able to expand its digital content distribution deals both in the U.S. and internationally in the near future. As a result, Viacom has raised its iternal forecast for digital content disribution revenue, which is now expected to witness a high-single to double-digit annual percentage growth rate.

Nevertheless, weak viewership rating of some channels including Nickelodeon and a potential decline in advertising revenue due to global economic volatility are matters of concerns. In the previous quarter, the company lost 20% in viewership ratings for its immensely popular Nickelodeon TV channel.

Stiff competitions fromother media companies like News Corp. (NWSA - Analyst Report) and Time Warner Inc. (TWX - Analyst Report) as well as increased programming expense may act as headwinds for the stock going forward.We reiterate our long-term Neutral recommendation on Viacom.

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