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Are Viacom Investors Too Focused on MTV?

Posted by: Lauren Young on November 13, 2009

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?

Reader Comments


November 14, 2009 10:34 PM

I agree and disagree to an extend. Viacom knows that the youth market with determine the future of the company. For example, The Avon company opened a division called Mark to target a younger market. The Avon company is a with standing business on its own but they understood in order to grow their market needed to be younger. Below are two examples of their sites to target different demographics. (Avon) (Mark)

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