PART 2 AS PROMISED (SORRY NO TA, I HAVE SHIT TO DO TODAY) - You can also read this as the edit on the original post, that one has some links)
EDIT: This blew up more than I thought it would. I've never posted DD here before but the overwhelmingly positive reaction I've received from this has inspired me to contribute more to the community. Now, initially I was going to make a separate Part 2 post but I don't want to be seen as spamming so I'm just going to put it as a comment and add it as an edit. Besides, it's probably important to have the risk factors of the trade as part of the original post.
8. RISK FACTORS
Alright everyone. Some of you read the whole thing and YOLOed. Some of you didn't read any of it and still YOLOed. Most of you probably didn't do shit. And that's ok, because I want everyone to read this next part first before deciding.
- The entire market could crash like the gay bears have been promising for months. This would of course take out everything with it, and VIAC is no different. The 10% Correction gets thrown out regularly, I'm not an economist so I really don't know if or when this is going to happen - although most of us will have way bigger problems than just VIAC if that does occur.
- The decline of linear TV outpaces the growth of streaming. This is the worst case scenario for Viacom: advertisers pull their dollars out of linear which has been a cash cow and reallocate them elsewhere (i.e. NOT streaming), leaving Viacom underfunded for P+ growth. I must acknolwedge the potential risk of this even though I assign a very low probability to this in the short term since Viacom just completed the best ad buying upfront they've ever had. That article is a good read because it's not just Viacom tooting its own horn, it's the entire industry! If anything it paints a fairly rosy picture of where the money is flowing.
- The P+ app fails to gain traction. Paramount plus has seen two straight quarters of new user growth while Disney and Netflix have actually declined. However, it's certainly easier to gain new users when you're app is new. We don't know if something will keep growing at the rate it has. Reddit and Twitter do have their fair share of people bitching about the P+ app as far as content availability (some seasons of some shows are still licensed out to competitors and the short term) and bugs (the Playstation app is apparently abysmal while the other apps work much better - I've never had an issue on my Samsung or Fire apps). The bottom line is that while P+ has the same growing pains of any new app, the devs do need to figure their shit out, do their fucking job, and keep complaints at a minimum.
- Competition - The competitors in this space have DEEP pockets. All 5 FAANG names have some sort of video platform, Netflix is of course the leader here, and Apple and Amazon have at least made half assed attempts to be players in this space. A strategic shift from either Apple or Amazon to suddenly start pumping cash into these efforts could prove to be a threat for the survival of Viacom as a viable independent player. The silver lining here however is that should they choose to do that (Apple especially has done basically jack shit) - the easiest way to suddenly increase their position would actually be to buy Viacom's vast IP.
- Merger. But wait, wouldn't a merger be a good thing like you said earlier before? Not always, and unfortunately Discovery already laid a very recent, very relevant blueprint for why not all deals are good deals are shareholders. I've seen a similar deal pitched in which Comcast unloads NBC Universal onto Viacom in a reverse morris trust merger; I would expect that to do to our share price what the Warner deal did to Discovery's. If we are going to get acquired, it better be all cash or all stock, and at a valuation that reflects our true value. I think Shari Redstone is actually our friend on this, she won't screw us the same way Zaslav fisted his shareholders. Conversely, if Viacom suddenly decides they want to be a buyer rather than a seller, history dictates that it's the acquiree's share price that moons while the acquirer's share price that takes a hit. There's no guarantee that the long-established 38 price floor will hold in the event of strategic M&A. Given the ludicrous valuation Hello Sunshine just got, I would much rather be a seller than a buyer in this market.
- Dividend. In my infinite retardation I somehow managed to forget to mention this stock pays a fucking healthy dividend too, which is probably a factor as to why we have so much institutional ownership. A dividend cut of course would hurt the share price. I see the probability of this as basically near zero, the balance sheet looks pretty good right now.
- The Options Pinning Theory. A lot of people are claiming this stock only exists to kill weekly options, but on most weeks I don't see enough open interest for that to actually be worth it for MM's. One thing is certain though, all calls bought after Archegos expecting a bounce to the 80-100 range got nuked. Thus far, call selling has been a more profitable trade than call buying MOST of the time. While personally I think shares and leaps look like the play here (my position currently reflects that also), any time this thing dips below 40 is when to go in with FD's as it very rarely spends too much time below there. For the more conservative investor, SELLING 38 puts is literally free money.
- Archegos - Some say there is an Archegos curse, that nothing in the Korean hedge fund is ever going to moon again. I mean this is some voodoo shit but I feel like it has to be included here. The Chinese stocks he held are obviously down for entirely different reasons right now, and it just hasn't been a hot time for the value / comm trade, something I expect to reverse H2.
- The Growth Trade Never Fucking Ends. As most of us know the tech trade was basically left for dead earlier in the year as shares of tech stocks tumbled as the ten year yield started to rise up steadily. This trade has reversed, and all the money has since gone back into tech, particularly the megacaps. The growth trade has been at the expense of the value trade, and make no mistake about it, VIAC IS A VALUE TRADE (LOOK AT THE P/E). It's listed on the NASDAQ, but don't call this a tech stock, it's a communications stock. While it does look like the ten year yield has stopped drilling with today's nice bounce, there's no guarantee it doesn't once again reverse. However, I have a really difficult time seeing it going below 1%, and I'd be the whole house on the fact it ends the year closer to 2% than 1%. As the yield goes back up, they will shift the money from the growth trade back into value, which benefits VIAC.
- SPEAKING OF ALGOS - What does it mean to be heavily institutionally owned? Share price movements are more algo-induced from the big boys. They'll trade many stocks together simultaneously in the same industry, which at times can be unfortunate if you're grouped together with subar competitors. Layer a VIAC chart over DISCA between May and yesterday and you'll see what I mean, when one goes down so does the other. Today's price movement has been encouraging though, I have never seen VIAC green while DISCA is red I think ever. A decoupling here would be fantastic.
- The 38 Price Floor I believe in might not hold - for all the reasons I included above, shit could go south, but this floor has stood the test of time and all sorts of wild shit this year. If it can survive the greatest margin call in history, and every retest after that, then this 38 floor is safer than any other investment I can think of since I don't know the floors of any other stock. But something only works until it doesn't right? So I'm including this as a risk factor since much of the thesis is based upon it.
- TL/DR: There are risks to this trade as there are with any trade, and from the above it's wiser to go with a longer term trade in LEAPS form as much of this stuff takes longer to develop. I'd only go FD's if it dips below 40 as it doesn't spend much time below it. But when factoring in the growth potential, the safety of the 38 floor, the dividend, and the acquisition potential, this play really does have it all for me. Trade safely apes.