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ViacomCBS is headquartered in Midtown Manhattan.
Mark Kauzlarich / Bloomberg
Sometimes it doesn’t take long to cool a hot stock once its momentum wears off. That seems to be the case
ViacomCBS
and
Discovery
in this week. Both have been in tears in recent months, while investors have piled on their previously unlocated shares.
The two old media companies have started new streaming services and revealed ambitious long-term goals for subscribers, which have clearly excited investors, while the reopening of optimism has benefited from wider value shares.
Now, some modestly negative news about each of them has led to violent withdrawals in their stocks.
ViacomCBS
The stock (ticker: VIAC) closed above 23% on Wednesday, after the media company priced an offer of its shares below the latest market price. There is a 9% drop on Tuesday and a monstrous rally ahead: shares have doubled since early February and increased almost ninefold from their level at the end of March 2020. It was the best performance.
S&P 500
component from March 23, 2020 until Tuesday.
Shares of ViacomCBS closed above $ 100 on Monday, before falling to $ 70.10 on Wednesday for high trading volume. This is a painful drop, but it brings the stock back to where it was trading about three weeks earlier.
On Monday night, ViacomCBS filed applications to raise about $ 3 billion through the sale of non-voting common Class B shares and convertible preferred shares. It announced the prices of these two offers on Wednesday and it seems that the institutional investors were not willing to maintain the rally of the action. The common stock offer of 20 million shares was priced at $ 85 per pop, or about 7% below its closing price of $ 91.25 on Tuesday. The company expects to raise more than $ 2 billion from the sale of common stock, compared to $ 1.7 billion it sells.
Preferred share offer at an annual yield of 5.75%. The shares will be converted into ordinary Class B shares in 2024, at a rate of between about 1 and 1.2, depending on the price of the common shares at that time. ViacomCBS preferences will be traded under the VIACP checkbox.
Both ViacomCBS offers are expected to close by the end of the week. They represent a dilution of less than 6% at current levels.
Discovery (DISCA) shares saw their rally interrupted this week. On Friday, at a record high of $ 77.27, the shares had a return of almost 300% since the beginning of November. They fell 3.4% on Monday, 4% on Tuesday and 13.6% on Wednesday. However, these declines only eliminate earnings as of March 3.
The Discovery stock trigger may have been downgraded from
UBS
Tuesday. Analyst John Hodulik moved to a sales rating from Neutral, citing rating issues even after a strong start for Discovery +.
“Against the background of changing media consumption and declines in the linear ecosystem, we believe the Discovery pivot to the DTC is the right one,” Hodulik wrote. “At the same time, we expect DTC investments and the worsening trends of the linear ecosystem to be weighted. [profit] medium-term growth. With stocks at all-time highs and default valuation of streaming activity that trades well over Netflix [NFLX] multiple, we believe that the stock has an unattractive risk-reward equation at current levels. ”
Hodulik estimated that the market estimates Discovery’s streaming business at revenue 20 times higher than 2023 – which compares to
Netflix
(NFLX) trades 6 to 10 times its estimated futures in the last three years.
For the actions of ViacomCBS and Discovery alike, the streaming optimism had simply become exaggerated. With each week of double-digit gains, the fund of investors willing to continue to accumulate at higher valuations has become smaller.
“To see upwards the current rating of ViacomCBS requires a strong belief that Paramount + will become a top global streaming service, which we find speculative at the moment,” Credit Suisse analyst Douglas Mitchelson wrote in a statement on Monday. a report. “It’s rare that we meet a fundamental investor (growth or value) who owns ViacomCBS right now, and instead we see momentum-driven investors – to quote Yogi Berra, ‘Nobody goes there anymore because it’s too crowded.’ ”
It didn’t take too much bad news to send them out.
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