Versant Media $VSNT was spun off from Comcast and the stock did exactly what people expected, which is to crash rapidly post the spin. This is typical because owners of Comcast stock do not want to own the new spun-off cable company, which they view as a melting ice cube. Since the shares are also not in the S&P 500 index there is forced selling and no offsetting passive buying.
The lack of offsetting buy interest also has something to do with the glib view, expressed by some involved in the Netflix/Warner Brothers transaction, that "cable assets are worth nothing."
Versant owns a lot of media assets in the cable world but a lot of those same assets can migrate over to on-demand and subscription models in the streaming environment. There can be debate over the speed of decline vs the uptake of streaming subscriptions but it's definitely worth something. Management targets 50% non-pay-TV revenue by 2030 versus 17% today.
With the shares down sharply to $35, the company's trading at an incredibly low multiple of 3-4x EBITDA. The management team has the ability to execute here, and they have very strong incentives financially to make this work. Even if we factor in a very adverse transition from NBC over the next two years, the cost comes out to around $200M of EBITDA on a base of over $2B.
The current price more than "bakes in" mostly negative outcomes, challenging industry dynamics and poor management execution. We have models all kinds of scenarios:
- The base case factors in revenue declines 5% annually through 2027 and digital initiatives merely stabilizing the trajectory, normalized multiples of 7-8x EBITDA imply $85-95 per share.
- A bear case lowers EBITDA but $200M in 2027 and the multiple stays compressed at 6-7x implies a share price of $60-70.
- There's always the possibility that management executes the strategy well and increases the value of their media assets. In which case as more of a "streaming player" the shares could be north of $100, possibly substantially in an M&A scenario.
Mark Lazarus and Anand Kini carry $42 million in combined stock-based incentives vesting over five years, aligning interests directly with equity holders. At 1.25x net debt-to-EBITDA and 20% free cash flow yield, management has flexibility: aggressive buybacks at depression valuations, strategic M&A focused on digital/non-pay-TV assets, or organic investment in proven growth initiatives like CNBC+ and FAST channels.
At the most basic level, this is a capital allocation story. If they spend cash flow intelligently and channel it into the right acquisitions that push them forward into streaming, and use buybacks when appropriate (like now given the share price) they have control over their destiny. This is a management team that is going to be focused on making money for themselves which in this case is good for shareholders.
The rest of the note covers more in terms of the assets, the strategy and includes the ugly parts which are thankfully not nearly as consequential as the NBC situation.
