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    Fox (FOXA)

    Q2 2024 Earnings Summary

    Reported on Feb 7, 2024 (Before Market Open)
    Pre-Earnings Price$31.62Last close (Feb 6, 2024)
    Post-Earnings Price$32.87Open (Feb 7, 2024)
    Price Change
    $1.25(+3.95%)

    What went well

    • Strong Affiliate Fee Growth: FOX achieved affiliate fee revenue growth despite industry-wide subscriber declines. The Television segment grew by 10%, and the Cable segment returned to growth, demonstrating the strength of FOX's brands and programming. This growth is expected to continue as rate increases have made up for subscriber declines.
    • Robust Advertising Outlook: FOX reported solid advertising performance, particularly in sports. The NFL season was strong, and there was a 63% growth in TubiTV, FOX's streaming service. Upcoming events like the DAYTONA 500 and the MLB season have positive momentum with advertisers, indicating continued advertising revenue growth.
    • New Market Opportunities with Sports JV: FOX's participation in the new sports joint venture opens up a significant opportunity to reach an estimated 60 million households currently not in the traditional pay-TV bundle, potentially driving incremental subscribers and revenues without significantly impacting existing pay-TV relationships.

    What went wrong

    • Declining Advertising Revenues: FOX Corporation reported a 23% decline in cable advertising revenues at FOX News Media, impacted by a softer direct response marketplace, lower comparative ratings, and higher levels of preemptions due to global events.
    • Industry Subscriber Declines: The company acknowledged subscriber declines running at approximately 8%, which could adversely affect their affiliate fee revenues despite rate increases.
    • Potential Risks from New Sports Joint Venture: Analysts expressed concerns that the new sports platform could negatively impact the traditional pay-TV bundle, which is crucial for FOX's distribution and revenues.

    Q&A Summary

    1. New Sports Streaming Service
      Q: What's the opportunity and risks with the new sports platform?
      A: Lachlan Murdoch described the opportunity as huge, targeting approximately 60 million U.S. households who are "cord-nevers" not currently in the pay-TV ecosystem. He believes risks to FOX News are very low since the new service focuses on a different market segment and won't undermine the traditional bundle.

    2. Impact on Pay-TV Bundle
      Q: Will the sports platform affect the pay-TV bundle?
      A: Murdoch is confident it won't significantly affect the traditional pay-TV bundle, emphasizing they wouldn't launch it if it posed a substantial risk. They've conducted extensive sensitivity analysis and remain strong supporters of the bundle, aiming to access a new market without undermining existing partnerships.

    3. Affiliate Revenue Sustainability
      Q: Is affiliate revenue growth sustainable despite cord-cutting?
      A: Despite an underlying 8% subscriber decline due to cord-cutting, FOX has achieved rate increases making up for declines. Murdoch believes they can maintain similar growth due to the strength of their brands and programming.

    4. Advertising Trends
      Q: What's the outlook for advertising revenue?
      A: FOX saw a solid NFL season and a 63% growth in Tubi. Scatter pricing is above upfront pricing, and FOX News ratings are improving. They expect a strong political advertising cycle, though local stations face tough comparisons due to last year's Super Bowl revenue of around $50 million.

    5. Sports Sublicensing Income
      Q: Is sports sublicensing income recurring?
      A: CFO Steve Tomsic indicated the sublicensing income from college sports and international soccer is somewhat of a one-off and won't repeat at the same level in future quarters. The benefit can be gauged by the increase in Cable Other revenues year-over-year.

    6. Approach to Sports Rights
      Q: Will the Netflix-WWE deal affect your sports rights strategy?
      A: Murdoch stated there's no impact from the Netflix-WWE deal on FOX's approach. They will continue to aggressively compete for sports rights, with no changes to their strategy.

    7. Openness to Ad Partners
      Q: Will you partner with other ad platforms on the new service?
      A: Currently, FOX is not considering adding ad partners. The service's 14 linear networks provide substantial content, and existing advertising from linear networks will flow into the service, increasing reach.

    8. Cash Contribution to Sports JV
      Q: What is FOX's cash contribution to the sports joint venture?
      A: It's too early to provide forecasts, but FOX expects the venture to be accretive, with affiliate fees collected outweighing funding needs.

    Analyst Coverage

    Research analysts covering Fox.