Cord-cutting's rise over the years, accelerated by the coronavirus pandemic, naturally led to a slew of streaming video services. ViacomCBS (VIAC +0.00%) (VIAC.A +0.00%) launched one of the newest, Paramount+, in March.
With literally hundreds of competitors, yet another streaming service seems unlikely to find its footing, even one built on the company's pre-existing CBS All Access product. But Paramount+ aside, ViacomCBS possesses a potent weapon in its streaming offerings, one that already delivers significant revenue.
This and other attributes make ViacomCBS an appealing investment despite the crowd of streaming competitors.
Image source: Getty Images.
Streaming ads strength
The secret weapon in the ViacomCBS streaming arsenal is Pluto TV. This service differs from many streaming competitors by offering its content for free rather than behind a subscription wall. The service instead generates revenue from advertising.
The model has proven successful. Pluto TV helped ViacomCBS grow streaming ad revenue by 41% year over year in 2020. The service carried its success into 2021, helping to drive 62% year-over-year streaming ad revenue growth in the first quarter.
Revenue from advertising accounted for 52% of total streaming income in Q1, eclipsing subscription sales. Research company eMarketer estimates Pluto TV's U.S. ad revenue alone will grow nearly 78% this year over last to reach $786.7 million, and generate more than $1 billion for the first time in 2022.
Pluto TV's steady growth in global monthly active users (MAUs) powers its revenue rise. When ViacomCBS acquired Pluto TV in March 2019, the service had about 12 million MAUs. Since then, the service quickly grew its customer base, and now, global Pluto TV MAUs exceed total streaming subscribers.
Data source: ViacomCBS. Chart by author.
Pluto TV MAUs in Q1 rose an impressive 90% over the previous year. If MAUs continue their upward trend, it would be reasonable for Pluto TV to reach $1 billion in revenue next year.
A bright future
Pluto TV's success is poised to continue. The company sees streaming revenue growth accelerating in the second quarter, helped by a double-digit rise in year-over-year ad revenue.
Pluto TV's revenue growth is fueled by connected TV (CTV). The majority of Pluto TV users watch via CTV devices. According to eMarketer, advertisers are forecast to increase ad spending on connected TV from $9 billion last year to $24.8 billion by 2024 thanks to the popularity of streaming.
The increase in CTV ad spend puts Pluto TV in a strong position to continue its revenue growth. But CTV is just one factor in the service's ongoing success. Pluto TV still has plenty of expansion opportunities internationally. It was in just 25 markets at the end of Q1 with plans to enter more.
ViacomCBS recognizes its opportunities in the streaming space, and made leadership changes in June to better support the growth of this business, including the creation of a chief programming officer of streaming role. These moves underscore how important a role the company sees its streaming operations playing.
ViacomCBS may not reach the lofty streaming subscriber totals of some of its larger media company rivals. But that doesn't mean its stock won't soar. ViacomCBS stock hit a 52-week high of $101.97 earlier this year, and subsequently tumbled after a confluence of events, including a secondary offering that diluted investor shares. It trades around $43 per share at the time of this writing, creating an excellent buying opportunity.
A company of many positives
Pluto TV isn't the only attribute making ViacomCBS a compelling investment. The company owns well-known brands such as Showtime, which enjoyed a record quarter of streaming signups and engagement in Q1. The return of sporting events should also herald revenue growth for ViacomCBS. The company experienced a 14% year-over-year lift in total Q1 revenue, helped by major events such as the Super Bowl and NCAA Tournament games.
ViacomCBS also pays a dividend, and had $1.6 billion in free cash flow at the end of Q1 compared to the previous year's $306 million. It had $5.5 billion in cash and equivalents on its Q1 balance sheet, up from $3 billion the previous quarter. This puts ViacomCBS in a strong position to fund its dividend, meet its financial obligations, and continue investing in its streaming operations.
With both streaming subscriptions and Pluto TV seeing customer adoption and revenue on an upward trajectory, ViacomCBS possesses a thriving streaming business poised to generate strong growth for years to come.
