ViacomCBS stock plummets as investors grow wary

ViacomCBS' (Nasdaq:VIAC) stock dropped more than 20% Wednesday after the company said it would rebrand as Paramount and reorient itself further around streaming.

Why it matters: Investors wonder how the combined company plans to compete against streaming giants like Netflix and Disney long-term and most expect the company to soon explore a sale.

Details: Along with the rebrand into Paramount Global, ViacomCBS also announced:

• Its Showtime streaming service would be bundled with Paramount+, though the two will operate separately.
• Paramount+ will have exclusive streaming rights to all Paramount Pictures movies starting in 2024.
• A partnership with France's Canal+ Group that will help Paramount+'s expansion goal of 60 international markets by the end of 2022.

Be smart: The same investors who were cheering Disney last week for its streaming growth don't have the same optimism for ViacomCBS, despite Paramount+ reporting its strongest quarter since its launch in early 2021.

• The service added more than 7 million subscribers for a global total of 32.8 million, and bringing ViacomCBS' total subscribers across all of its streaming services to 56 million.
• That is still far behind Netflix, Disney+ and WarnerMedia's HBO Max.
• ViacomCBS did raise its subscriber goals to 100 million by 2024. The company had previously expected to have around 70 million by that time.
• Streaming revenue is now forecast to be $9 billion by then, up from its previous forecast of $6 billion.

What they're saying: Bank of America's Jessica Reif Ehrlich downgraded the stock from "buy" to "neutral" Wednesday morning and lowered her price target from $52 a share down to $39. Michael Nathanson of MoffettNathanson also lowered the company's price target by $4, to $31 a share.

• "Even though we think Paramount’s shift to streaming is necessary given the headwinds the company faces on the traditional business, we still have a hard time seeing how DTC would become big enough to return the total company on a path to growth within the next five years," Nathanson wrote in a Wednesday research note.

The big picture: The streaming landscape continues to get more competitive and more expensive, as streaming heavyweights like Disney, Netflix, Amazon and WarnerMedia up their investments. For just one example, Disney will increase its streaming spend by as much a $1 billion in the current quarter.

What to watch: The tepid response from Wall Street may force Shari Redstone to explore a sale more earnestly.