Shares of media giant Viacom (NASDAQ:VIAB) (NASDAQ:VIA) have fallen nearly 40% since the beginning of the year, dramatically underperforming both the S&P 500 and its industry peers Disney, Time Warner, and Fox.

Viacom's cable and film brands. Source: Viacom.

Last quarter, Viacom's revenue slid 10.6% annually to $3.06 billion, missing the consensus estimate of $3.22 billion. Net earnings fell 3.1% year over year to $591 million, or $1.47 per share, matching expectations. In response, investors sold off the stock, causing it to plunge to its lowest point in nearly four years.

But after that drop, the stock looks fundamentally cheap. It trades at just 10 times earnings and 1.3 times sales, versus an average P/E of 17 and P/S of 2.2 for media industry stocks. Therefore, some investors might be wondering if Viacom is a worthy contrarian buy at current prices.

What's wrong with Viacom?
Prior to Viacom's third quarter earnings report, Disney, Fox, and Time Warner had all reported disappointing numbers, indicating that cable subscribers were cutting cords and fleeing to streaming platforms like Netflix.

Viacom's results were another confirmation of that trend. Last quarter, revenue at its main Media Networks unit -- which includes MTV, Comedy Central, BET, and Nickelodeon -- remained almost flat year-over-year at nearly $2.6 billion, while operating income declined 1% to $1.1 billion. Domestic ad sales decreased 9% annually -- Viacom's fourth consecutive quarter of declines -- while worldwide ad sales fell 2%. The drop was caused by declining ratings at key networks like MTV and Comedy Central.

MTV's Scream. Source: MTV.

Viacom's Filmed Entertainment unit, which accounted for only 16% of its revenue and 4% of its operating income last quarter, also fared poorly due to unfavorable comparisons with the release of Transformers: Age of Extinction a year earlier. Since Viacom didn't release any major films during the third quarter, the division's revenue fell 44% annually and operating income slid 13%.

Looking ahead, Wall Street doesn't expect Viacom's top- and bottom-line growth to return anytime soon. For fiscal 2015, analysts expect Viacom's revenue to decrease by 2.9% annually, and for earnings per share to inch up by just 1.5%.

Will things get better?
Viacom believes that traditional TV ratings provided by Nielsen don't provide investors with a clear picture regarding its growth potential. The company intends to grow its "non-Nielsen dependent" ad revenue from 30% of ad revenue today to 50% of the total in three years.

Viacom plans to do this by selling three new ad products that don't depend on Nielsen ratings -- Velocity, Echo, and Vantage. Velocity is a custom content hub which inserts big brands into TV programs via product placements, thus decreasing Viacom's dependence on traditional commercials. Echo provides advertisers with access to social media campaigns. Vantage mines customer data to target niche audiences beyond simple age and gender-based demographics.

Viacom hopes those strategies will offset its declines in traditional ad revenue. Macquarie analyst Tim Nollen recently stated that he saw "a glimmer of hope" in Viacom's use of new ad technologies to target younger viewers. However, he warned that the efforts "will take time" to generate fresh revenue.

Viacom has also started unbundling its networks into stand-alone streaming services to challenge Netflix and Hulu. In February, it launched a stand-alone Nickelodeon streaming service for $6 per month. The company also provides streaming content to Amazon, and will likely sign a similar deal with Apple when its streaming TV service finally arrives.

Nickelodeon. Source: Author's screenshot.

In Filmed Entertainment, Viacom's "tentpole" films -- Terminator: Genisys and Mission Impossible: Rogue Nation -- will fuel revenue growth during the current fiscal fourth quarter. But despite that year-end boost, COO Thomas Dooley warned that the business will still face "difficult bottom-line comparisons" to last year's results. Looking ahead into fiscal 2016, Viacom/Paramount will release the final chapter of its Paranormal Activity series, the third Ring film, Zoolander 2, Teenage Mutant Ninja Turtles 2, and Star Trek Beyond.

The bottom line
Viacom stock is certainly cheap, and the company seems hopeful that its new ad technologies will generate fresh revenue. However, the stock will likely remain under pressure as concerns about cord-cutting rise and Viacom's ratings and ad revenue keep dipping. Without any near-term catalysts to support the stock, Viacom could fall further before it bounces back.