Why streaming stocks have plunged today


What happened

The streaming business took a hard hit on Wednesday with shares in some streaming actions double-digit fall. Large sections of the market are down, especially in growth and tech stocks, so a decline in stocks should be taken with a bit of caution, but it is still noticeable.

A decrease of 21.3% ViacomCBS (NASDAQ: VIAC), a decrease of 13.2% Discovery (NASDAQ: DISCA) A shares, and a drop of 12.9% Discovery (NASDAQ: DISC) C stocks are posting some of the biggest losses today. As of 2:40 p.m. EDT, those stocks were down 20.8%, 12.1% and 12.3% respectively.

Image source: Getty Images.

So what

The biggest news is that ViacomCBS has priced an offering of shares and mandatory convertible preferred shares that could bring the company up to $ 3.06 billion. A $ 20 million Class B share offer was priced at $ 85 per share, while the mandatory convertible preferred share offer had a 5.75% coupon rate and will convert to shares priced between 1.0013 and 1.1765 shares for $ 100. The conversion will take place on April 1, 2024.

Management said the funds would be used for investments in streaming, pointing out how expensive the venture can be. And it is recognized that the traditional media industry does not generate enough cash to fund streaming operations.

Investors could also be concerned that the recent launch of Paramount + has not attracted as many users as expected. Streaming will be all about speeding up users, and while ViacomCBS said it had nearly 30 million subscribers globally in February, it had only targeted 65-75 million by 2024. That’s a fraction of Walt disneywith Disney +, which went from launch to 100 million subscribers in just over a year.

Discovery shares are likely down as it occupies a similar strategic position to ViacomCBS with a audience and content library smaller than the big names As Netflix and Disney. So it will be an uphill battle to create a viable streaming business for both companies in the long run.

Now what

ViacomCBS and Discovery are in a difficult position with the fourth or fifth streaming services at best, behind Netflix, Disney + and Hulu. And it will be costly to catch up significantly.

After a sharp rise in stocks over the past few months, investors seem to understand the fact that continued growth may not be as fast or as profitable as they had hoped. And until we see sustainable progress in attracting streaming subscribers, these stocks may continue to be volatile.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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