In Focus: The New Amazon and ViacomCBS
In Amazon's (AMZN) most recent quarterly call, Amazon's CEO of 27 years shocked the world and announced his transition from the CEO position.
It was a blow to me and my investment theory that Amazon is really the most valuable company in the world. Most of my theory relied on Jeff Bezos being the leader of Amazon.
As Amazon's leader Jeff has spent almost three decades with his foot on the gas. There has never been a period of coasting for Amazon, and that has put them in the position they're in today, a $1.7 trillion enterprise. Dealing with the pandemic in 2020 would have looked a lot different if Amazon decided not to build out its own delivery network all those years ago.
My first thought after Jeff Bezos' announcement was will the new head of Amazon continue to keep his foot on the gas or will he coast?
Luckily for investors Jeff Bezos isn't going very far, he's transitioning from CEO to an executive chair position. Also, Bezos' replacement Andy Jassy is no slouch. He started with Amazon two years after the company started. Jassy is credited with starting Amazon Web Services (AWS), which has become a major breadwinner for Amazon. AWS reported revenue of $12.7B for Q4 2020.
I wrote in November why Amazon is really the most valuable company in the world, and you can read that here. Even with a new CEO, I still view Amazon as the second coming of Berkshire Hathaway, but the tech version. Where Buffett collected insurance companies and manufacturers, Amazon will build tech based in-house brands that all feed back into Amazon, think AWS, Prime, Twitch, Alexa, and Luna to name a few.
Trading at over $3300 per share, the shares may appear to be too rich for some investors, but you will likely regret not pulling the trigger when we close out this decade and the price has doubled. Amazon is at the point where it's not flashy, it's not exciting, it's just getting more valuable day-by-day. The stock remains a buy in my book.
The Streaming Wars
The streaming wars continue to heat up, as every company that has some form of content makes an attempt to get every dollar consumers are willing to spend on home entertainment.
In March, CBS All Access will transform into Paramount Plus, and add to the service content from MTV, BET, Nickelodeon, Comedy Central, as well as Paramount Pictures.
Currently ViacomCBS (VIAC) sits at $54.04 per share with a market cap of $33.3 billion. CBS All Access reached 17.9 million subscribers last year, this pales in comparison to HBO Max's 37.7 million, Disney Plus' 86 million, and Netflix's 200+ million subscribers. However, Paramount Plus could see a big jump in subscribers with it's new added content.
There are still going to be losers in the streaming war, but it's way too early to tell who will end up as one of the fallen in the end. In the short term, it's clear that the cable companies are in trouble.
In a recent poll conducted by newsman Philip Defranco, 52% of the 175,000 voters that responded stated they never had a TV subscription and 27% responded that they had cancelled their TV subscriptions. Assuming that the 52% never gets cable, and instead uses their entertainment budget to increase their streaming options, it's not looking too good for cable providers. This is why it makes sense that Viacom transitions to a business model that isn't heavily reliant on cable. With that said, streaming still has it's issues.
We've hit that point that many people saw coming, where there are so many streaming services that to have them all is like paying for cable again. A fortunate few will have the resources to comfortably afford them all, but it's the large majority of the population that will decide the winners and losers of the streaming wars, and there will be losers.
Where Paramount Plus will end up is anyone's guess, but the film company has a deep vault of motion picture content, as well as dozens of new movies on the way like Top Gun: Maverick. Paramount Plus could leverage the motion picture business the way Disney Plus did with Mulan and Soul and HBO Max did with Wonder Woman 1984.
$33 billion seems cheap for a company that's able to monetize the Paramount Picture vault with a monthly subscription fee. Wall Street loves the subscription based recurring revenue model and usually overpays to invest in a company that shows any sign that the recurring revenue model is working. At ~$54 a share ViacomCBS may be worth an investment for anyone looking for a boring streaming play.