CBS (NYSE:CBS) has for years been a big player in a media soap opera involving Sumner Redstone's family drama, which has had as many twists as any daytime serial. Through it all, CEO Leslie Moonves has been a counterbalancing power to the Redstones: Even though he helped thwart the controlling family's desire to reunite his company with Viacom, he was seen as too important to remove. Yeah, about that -- now he's out, the latest big media name to discover that fame has ceased to protect him from the consequences of being an alleged sexual abuser.
Yet as Market Foolery host Chris Hill and senior analysts Jason Moser and Taylor Muckerman note in this segment from the Market Foolery podcast, many pundits don't seem any less happy with the company. For a whole range of reasons, the Fools are a bit more concerned, and they talk about why.
A full transcript follows the video.
This video was recorded on Sept. 10, 2018.
Chris Hill: CBS announced that chairman-CEO Les Moonves is leaving, effective immediately. This comes just hours after The New Yorker published accounts from six women with allegations of sexual abuse, sexual assault, or misconduct. This is not to be confused with the allegations from six other women, which came earlier this summer. Just from a stock perspective, I have to admit, I'm a little baffled by analysts who were coming out this morning and saying that they would invest in CBS, that they would say, "Well, the underlying business is strong." I just look at the underlying drama going on. I mean, the chairman and CEO is gone. We're seeing big turnover in the board. No word on who -- I think an interim CEO is installed.
Taylor Muckerman: The Redstones always seem to have a flair for the dramatic.
Hill: Absolutely. At the end of the day, I never want to invest in drama.
Jason Moser: No, not at all. I definitely don't want to make light of the situation. There's plenty we don't know about what went on. I'm certainly not making light of any of that. I think ultimately, you keyed in on it. The history of this business, with the Redstones and National Amusements and now this, it reads out like a story arc in The Young and the Restless or something. I don't like investing in those types of companies, either. Once this all shakes out, at the end of the day, you still have a company, a legacy media company, that is facing a much different landscape today than it ever dealt with over the 25 years of Moonves' tenure. And I don't know, necessarily, how they deal with that.
If you look at the financials of the business, top line is essentially flat over the course of the last five years. Advertising made up 42% of total revenue in 2017, vs. almost half in 2016. If they're losing money on the advertising side, and it's reasonable to expect that to continue, how are they going to make it up? Folks really aren't lining up to subscribe to an a la carte CBS service like they are to a Netflix or Amazon or HBO. Once all of this shakes out, I think it's a business that still faces a lot of challenges going forward.
Hill: To go back to Moonves for a second, one of the storylines here -- we were talking about this earlier, Taylor -- is, what if any kind of parachute is he going to get? We saw reports over the weekend that he might get $100 million, all that sort of thing. But CBS is saying, "No, we're doing our own investigation into this." It's entirely possible that he's going to get nothing or next to nothing. I'm not a shareholder of CBS, but I kind of like the idea that a CEO who's on their way out potentially walks away with nothing if they're being fired for cause, which it appears to be. And spare me the whole "stepping down." He's not stepping down.
Muckerman: [laughs] Yeah, no. Only a turn of phrase. Definitely not. If I was a shareholder, I would be happy with that decision, if he is found guilty with this personal internal investigation that CBS is running. Applause to them for doing it on their own. Hopefully it's done by the book without any foul play. Yeah, if I was a shareholder, I would definitely applaud that internal effort.
Moser: I wonder, if you're an analyst looking at the stock here, it's fascinating to me to look at these two charts side by side: the 10-year chart and the five-year chart. If you look at the 10-year chart for CBS, the returns are there. It's actually been a pretty good stock to own. It's outpaced the market. But, look at it over the last five years. You haven't wanted to own this stock. It's not performed well, the market's outpaced it. I think that goes to speak to this quickly changing landscape. I think they are going to be facing more of that in the coming years.
I have a hard time understanding why someone would come out and just immediately say, "Yeah, we're not worried about leadership change here. This thing is still a buy," because clearly it's a company facing a lot of headwinds.