Please ensure Javascript is enabled for purposes of website accessibility

Why Streaming Stocks Plunged Today

By Travis Hoium - Mar 24, 2021 at 3:44PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It's going to be costly to become a big streaming player.

What happened 

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. 

Couple watching TV on a couch.

Image source: Getty Images.

So what

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. 

Now what

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. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Paramount Global Stock Quote
Paramount Global
$32.64 (1.30%) $0.42
Netflix, Inc. Stock Quote
Netflix, Inc.
$186.35 (1.56%) $2.87
The Walt Disney Company Stock Quote
The Walt Disney Company
$102.42 (-0.70%) $0.72
Warner Bros. Discovery, Inc. Stock Quote
Warner Bros. Discovery, Inc.
Golden Nugget Online Gaming, Inc. Stock Quote
Golden Nugget Online Gaming, Inc.
Warner Bros. Discovery, Inc. Stock Quote
Warner Bros. Discovery, Inc.

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/21/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.