Analysis: Viacom's Profit Rises, but Stock Falls


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.

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