Viacom Has Strong Quarter on Increased Ad Revenue

May.10.11 | About: Viacom Inc. (VIAB)

Viacom Inc. (VIA.B) reported excellent financial results for the second quarter of fiscal 2011. Both top line and bottom line were well ahead of the Zacks Consensus Estimates. Strong viewership rating for Viacom’s cable channels resulted in higher advertising revenue. In addition to the domestic market, advertising revenue from the U.K. and Latin America also witnessed double-digit growth. Viacom has sold its loss making Harmonix video game businesses that will help the company to further improve its bottom line going forward.

Improving advertisement expenditure by several enterprises as a result of an improving U.S. economy will enable Viacom to maintain profitability in the long run. Several automakers, toy companies, technology companies, and retailers are raising their advertisement budgets. This, in turn, is benefiting the media companies and Viacom is no exception. In the second quarter of fiscal 2011, the U.S. advertising revenue grew 11% year over year while international advertising revenue inched up 12% year over year.

However, the company’s advertisement revenue growth was far below its closest competitors. In the second quarter fiscal of 2011, Viacom’s domestic advertisement revenue grew by 11% compared to a massive 31% of Time Warner Inc. (NYSE:TWX) and 14% of News Corp. (NASDAQ:NWS).

In the last quarter, Theatrical revenue of Viacom’s Filmed Entertainment division was up 50% to $401 million. This was mainly attributable to higher number of picture released. We believe this trend will continue in the near future since Paramount Picture entered into a feature-film animation venture.

Meanwhile, the stock price has soared over 69% last year and is currently trading at the high-end of its 52-week price range. We believe the company is currently fairly valued and therefore maintain our long-term Neutral recommendation on Viacom.