NEW YORK Perception can be everything -- in Hollywood and on Wall Street.

Imagine your company grew revenue by at least 18 percent over the past two years with nice profit gains to boot and had "buy" recommendations on its shares from many analysts. Yet your stock was down more than 20 percent since the start of 2006.

How is that possible and what can be done?

Viacom president and CEO Philippe Dauman must be hearing these questions every day. After all, it is his company that has seen this startling divergence between positive financial momentum and stock price sorrow.

Sure, a weak U.S. economy and concerns about the digital future have been drags on shares of many big media and entertainment companies. But that alone doesn't seem to explain the situation.
 
After all, The Hollywood Reporter Showbiz 50 stock index is up 5 percent, from 1,147.33 on Jan. 3, 2006 (the first day after the Viacom split with CBS Corp.) to 1,204.77 on Tuesday. Viacom shares have dropped 20.8 percent, from $41.54 to $32.90, over that period even though its financials have grown faster than most of its peers.

For example, financial growth at Viacom has handily exceeded CBS Corp., but the dividend-paying sibling has done better stock-wise since the companies' split (down 14.2 percent).

In short, Viacom so far is fulfilling its pre-split promise of being a growth company in terms of financials, but not in terms of stock price.

What has held Viacom shares back is the double-whammy of an ever-changing set of challenges and a management communication style that doesn't quite connect with investors.

In terms of business challenges, Dauman took over at a time when key cable networks in the Viacom family were seeing ratings declines. As soon as investors became comfortable that this problem was fixed thanks to new hits like MTV's A Shot at Love With Tila Tequila, the future relationship with Steven Spielberg and his DreamWorks partners hit the headlines.



"It's always something with Viacom," Miller Tabak analyst David Joyce says. "First, they started losing TV viewership by the young audiences. ... Then it started comping better, and the market started focusing on the internal fighting between Paramount and DreamWorks. Now, it's some sort of economy-related difficulty, as they are having some sort of problem selling advertising across platforms."

Indeed, Dauman recently caught investors flat-footed by telling an investor conference -- pretty much in passing -- that second-quarter U.S. advertising revenue growth at Viacom's cable networks would be half of what management had predicted a month earlier.

This is where the second problem comes in: communication. Dauman has been one of the most active entertainment executives on the speaking circuit, explaining how his team has made Viacom more efficient and creative. Yet investors so far seem not to feel enough excitement from him.

Plus, Viacom has repeatedly managed to disappoint and surprise the Street. The fact that Joyce couldn't fully get his hands around and explain the latest ad challenge tells part of the story.

No wonder then that analysts have given Viacom brass an earful after the recent reduction in guidance.

"We are disappointed with the limited information provided on this outlook change," says UBS analyst Michael Morris, who also criticized "the almost nonchalant delivery" of the bad news.

Pali Research analyst Richard Greenfield complained that management didn't "put any context around the type of cost controls it has at its disposal to mitigate the impact of revenue shortfalls, nor the continued progress it continues to make outside the U.S."

Recommends Greenfield: "Improved communication skills would accelerate [the company's] stock performance."

 For now though, analysts remain bullish on Viacom's potential, if wearily so.

Joyce has a "buy" rating with a $45 short-term and $51 long-term price target on the stock. Morris recently confirmed his "buy" rating and $48 target, saying "we caution against throwing the baby out with the bathwater."



But investors' patience could wear thin sooner or later. At Viacom's annual shareholder meeting last month, Dauman promised that "the market will appropriately value our shares" over time if management continues to execute well, while [chairman Sumner] Redstone suggested that Viacom shares would be higher next year.

 They better be.

Redstone has continued to shower Dauman with praise for the positive operational and planning changes he has brought to the company. But beyond investors, part of Dauman's wealth and -- importantly -- that of his boss are tied to the sluggish stock.