The streaming business took a big hit on Wednesday with shares in some up-and-coming streaming stocks falling double digits. Large sections of the market are falling, particularly in growth and technology stocks, so a slide in shares should be taken with a bit of a grain of salt, but it's still notable.
A 21.3% drop in ViacomCBS (PARA 1.30%), a 13.2% drop in Discovery's (DISCA) A Shares, and a 12.9% drop in Discovery's (DISCK) C Shares show some of the biggest losses today. At 2:40 p.m. EDT, these shares were down 20.8%, 12.1%, and 12.3% respectively.
The biggest news is that ViacomCBS priced a stock and mandatory convertible preferred stock offering that could net the company up to $3.06 billion. A 20 million Class B share offering was priced at $85 per share, while the mandatory convertible preferred stock offering was priced with a 5.75% coupon rate and will convert to stock at between 1.0013 and 1.1765 shares of stock per $100. Conversion will take place on April 1, 2024.
Management said the funds will be used for investments in streaming, highlighting just how expensive that business can be. And there's an acknowledgment that the traditional media business isn't generating enough cash to fund the streaming operations.
Investors could also be worried that the recent launch of Paramount+ hasn't drawn in as many users as anticipated. Streaming will be all about getting users fast and while ViacomCBS said it had nearly 30 million global subscribers in February, it had targeted just 65 million to 75 million by 2024. That's a fraction of Walt Disney's growth rate with Disney+, which went from launch to 100 million subscribers in a little over a year.
Discovery's shares are likely falling because it's in a similar strategic position as ViacomCBS with a smaller audience and content library than big names like Netflix and Disney. So, this will be an uphill battle to build a viable streaming business for both companies long-term.
ViacomCBS and Discovery are in a tough position with at best the fourth- or fifth-biggest streaming services, behind Netflix, Disney+, and Hulu. And it will be expensive to catch up in any meaningful way.
After a sharp rise in shares over the past few months, investors seem to be coming to grips with the reality that streaming growth may not be as quick or as profitable as they once hoped. And until we see sustainable progress in attracting streaming subscribers, these stocks could continue to be volatile.