Viacom, owner of networks such as MTV, Comedy Central and Nickelodeon, reported net profit of $ 535 million on Thursday, or $ 1.33 a share for its fiscal first quarter, up from $ 396 million, or $ 1 a share, a year earlier. Revenue still fell 7.6%, to $ 3.07 billion, missing analysts’ estimates of $ 3.14 billion as subscribers continued to cut the cord in favor of streaming services. Paramount, Viacom’s movie division, was a particular black spot, with revenue falling 28% in the quarter thanks to a series of poor releases.
Yet investors were pleased. Shares climbed 7.2% Thursday during a horrific session for the broad stock market. That may reflect their relief that numbers were mostly in line, increasing the probability of a deal.
It is also an acknowledgment that the company, though still in the early stages of a turnaround, is beginning to reap the rewards of chief executive Bob Bakish’s strategy. In a call with analysts, Mr. Bakish said the company is on track to see $ 100 million in new cost savings in the second half of this year, with “hundreds of millions more” in 2019.
“As Viacom starts to fix a lot of the prior management team’s missteps, there’s a lot of value creation that will only be accelerated by a merger,” said Rich Greenfield of BTIG Research.
Though analysts at MoffettNathanson project a loss of $ 100 million for Paramount this year, for example, they are hopeful that it will turn around to a profit of $ 77 million in 2019. The Fox – Disney deal, which may actually be increasing the value of Paramount, is drawing business to Viacom, according to Mr. Bakish.
While much of the focus has been on stabilizing the U.S. business, Viacom’s international business has also become a bigger part of its story. International network revenue, which includes high-growth markets such as Latin America and India, rose 13% in the last quarter.
The greatest risk to Viacom continues to be on the distribution front. But a merger with CBS would solve that. CBS, in turn, would get substantial cost savings and a better direct-to-consumer offering. Another problem is simply scale. Both companies need it, badly.
Shareholders’ reaction was rational. Viacom’s results didn’t have to be fantastic, just not terrible enough to sideline this deal.