Unscrambling Monday's Egg

Unscrambling Viacom, Inc.

Running Viacom through the Chicks' Dozen
by Chick Susie

This past week Chick Karin and I were doing the book tour in St. Louis, my hometown. We did quite a few radio shows, and a couple of television interviews. One of the radio shows who had us as guests was KMOX. As part of my obsession with research, I found out that KMOX is owned by an even larger media conglomerate, Viacom (VIA.B). I thought I'd run Viacom through the Chicks Dozen this week, since it was what we knew this past week. (It also helped Chick Karin when she was stumped for an answer. She would suddenly spew out, "Did you know that your company has Gross Margins of 43%? Not bad for a media company.")

Viacom (NYSE : VIA.B)

1. Buy What You Know  Viacom is a media company.  I had to disclose that once I worked for one of the subsidiaries, KMOX Radio.  The core products are movies, television, radio and the Internet.  Viacom owns BET (Black Entertainment Television), CBS, Paramount, UPN, MTV, VH1, Nickelodeon, Showtime, Comedy Central, 35 CBS and UPN television stations, Simon and Schuster (a publisher who was interested in the Chicks book), 82% of Blockbuster and Infinity Broadcasting (160 radio stations including KMOX).

2. K.I.S.S.  Have you been living under a rock? Heard of Survivor? Chick Karin has been known to rush through book signings on Thursday nights just to run home and catch it. Now her publisher knows better to leave Thursday's open.

3. The Industry   In the world of media, bigger is better and the amalgamation, acquisitions and mergers have made the entire industry healthier and more formidable. Do I think this industry is going to grow faster than others? If they are into the merging and acquisition scene, I'd say they the pace is up to them, but I'd want to own stock in a company that does enjoy going a little over the speed limit.

4. Leader In Its Field  No, Viacom ranks #3 behind AOL/Time Warner (which the Chicks own) and Disney.

5. Repeat Profitability  Yes, yes and yes. (Karin can hardly wait for Survivor Three... matter of fact, I heard she is in training for it.)

(The following formulas were based on figures taken from Viacom's most recent quarterly income statement of 12/31/00.)

6. Gross Margins

6143-3493/6143 =

2650/6143 =  .4313

Change to a percentage

100 x .4313 = 43.1%

The Chicks like this to be 50%. Close but the channel is a bit fuzzy.

7. Net Margins

30.4/6143 = .0049

Change to a percentage

100 x .0049 = .5%

This is typical of a media company as they usually incur huge operating expenses. Viacom is no different. The Chicks would like this to be 8% or greater. Not even an antenna can get their net margins into focus... but hey, I've seen some companies whose net margins are in the negative. Positive is, well, positive.

(The following figures were taken from Viacom's most recent quarterly balance sheet of 12/31/00.)

8. More Cash than Long Term Debt

Cash = 934

Long Term Debt = 23,473

(Still must be feeling those acquisition costs)

9. Flow Ratio

(Current Assets - Cash*) / (Current Liabilities - Short Term Debt)

7832 - 934 / 7758-0 =  

6898 / 7758 = .88

Totally in focus with our requirement that the Flow Ratio be less than 1.5.

10. Increasing Growth

  Growth is increasing!!

11. Strong Management and Operating History

Chick Cheryl wrote a great article on the Chicks' website on February 14, 2001 about Sumner Redstone, Viacom's CEO. For this Chicks Dozen I not only call your attention to Sumner, but I also did a little homework on Mel Karmazin, President and COO. He is a reported workaholic (arrives in his office at 6 AM and sometimes answers the phone). He started as a salesman at CBS Radio and left to create Infinity Broadcasting. He claims to travel coach class and scrutinize employee expense reports. Sounds like the perfect COO (if you are a shareholder, not an employee).

12. Buy on Sale

Two types of VIA.B stock -