10-Q: Fox Corp. Q2 Earnings Decline Amid Investment Losses, Streaming Launch Costs

Fox Corporation reported a significant decline in net income and EPS for the second quarter and first half of fiscal 2026, primarily driven by net losses on equity investments and increased costs associated with its new streaming service, FOX One.

Summary

• Revenues increased by 2% to $5.18 billion for the three months ended December 31, 2025, and by 3% to $8.92 billion for the six months ended December 31, 2025, compared to the prior year periods.
• Net income attributable to Fox Corporation stockholders decreased by 39% to $229 million ($0.52 diluted EPS) for the three months, and by 31% to $828 million ($1.85 diluted EPS) for the six months ended December 31, 2025.
• The decline in net income was primarily due to a $242 million negative swing in non-operating other, net, largely from net losses on investments in equity securities (e.g., Flutter Entertainment plc), compared to gains in the prior year.
• Operating expenses increased by 3% for both the three and six months, driven by higher sports programming rights amortization and production costs, and increased digital content costs.
• Selling, general and administrative expenses rose by 13% for the three months and 15% for the six months, mainly due to marketing costs for the launch of FOX One and higher employee costs.
• Restructuring, impairment and other corporate matters improved significantly, decreasing from $170 million to $14 million for the three months, and from $196 million to $6 million for the six months, primarily due to the discontinuation of Venu Sports in the prior fiscal year.
• Cable Network Programming segment EBITDA increased by 5% to $687 million for the three months and by 6% to $1.49 billion for the six months, driven by higher distribution, advertising, and content revenues.
• Television segment EBITDA decreased by 30% to $143 million for the three months and by 6% to $542 million for the six months, impacted by lower content revenues and higher sports programming and digital content costs.
• Corporate and Other segment EBITDA decreased by 70% to $(138) million for the three months and by 78% to $(272) million for the six months, primarily due to costs associated with the launch of FOX One.
• Cash and cash equivalents decreased significantly from $5.35 billion as of June 30, 2025, to $2.02 billion as of December 31, 2025.
• Net cash used in operating activities increased from $(204) million to $(799) million for the six months, mainly due to lower political advertising receipts, higher sports programming payments, and tax payments.
• The company repurchased approximately 25 million shares of Common Stock for approximately $1.8 billion during the six months ended December 31, 2025, with $3.6 billion remaining under the authorization.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this as a negative report due to the significant decline in net income and EPS, driven by investment losses and high costs associated with new strategic initiatives like FOX One, despite modest revenue growth. The increased cash burn from operations and financing activities is also a concern.

Positives

• Overall revenues increased by 2% for the quarter and 3% for the six-month period, demonstrating continued top-line growth.
• Cable Network Programming segment EBITDA grew by 5% for the quarter and 6% for the six-month period, driven by higher distribution, advertising, and content revenues, including expanded international soccer rights.
• Distribution revenue increased due to higher average rates per subscriber and higher fees from affiliated television stations, partially offsetting subscriber declines.
• Advertising revenue saw growth from higher linear pricing, continued digital expansion led by the Tubi AVOD service, and the broadcast of additional Major League Baseball (MLB) postseason games.
• A significant reduction in restructuring, impairment, and other corporate matters, improving by $156 million for the quarter and $190 million for the six-month period, largely due to the prior year's discontinuation of Venu Sports.
• The Board authorized an additional $5 billion for the stock repurchase program in August 2025, bringing the total authorization to $12 billion, signaling confidence in the company's value and commitment to shareholder returns.
• The company maintains a strong liquidity position with $2.02 billion in cash and cash equivalents and an unused $1.0 billion revolving credit facility.

Negatives

• Net income attributable to Fox Corporation stockholders decreased significantly by 39% for the quarter and 31% for the six-month period.
• Diluted earnings per share (EPS) fell by 36% to $0.52 for the quarter and by 29% to $1.85 for the six-month period.
• Non-operating other, net, experienced a substantial negative swing of $242 million for the quarter and $600 million for the six-month period, primarily due to net losses on investments in equity securities, notably Flutter Entertainment plc.
• Operating expenses increased by 3% for both periods, driven by higher sports programming rights amortization and production costs, and increased digital content costs.
• Selling, general and administrative expenses increased by 13% for the quarter and 15% for the six-month period, largely due to marketing costs for the launch of FOX One and higher employee costs.
• Television segment EBITDA decreased by 30% for the quarter and 6% for the six-month period, impacted by lower entertainment content revenues and increased sports programming and digital content costs.
• Corporate and Other segment EBITDA saw a substantial decrease of 70% for the quarter and 78% for the six-month period, reflecting significant investment in the new FOX One streaming service.
• Net cash used in operating activities increased from $(204) million to $(799) million for the six months, primarily due to lower political advertising receipts (absence of 2024 elections), higher sports programming payments, and increased tax payments.
• Net cash used in investing activities increased from $(240) million to $(393) million for the six months, due to increased investments and capital expenditures.
• Net cash used in financing activities increased from $(553) million to $(2.14) billion for the six months, largely due to the accelerated share repurchase program and purchase of noncontrolling interest.
• The company experienced a lower average number of subscribers for its distribution services, partially offsetting gains from higher rates.

Risks

• Evolving technologies and distribution platforms, along with changes in consumer behavior, could impact content consumption and advertiser engagement.
• Declines in advertising expenditures due to economic conditions, shifts in digital advertising, major sports events, election cycles, and audience measurement inaccuracies.
• Further declines in the number of subscribers to multi-channel video programming distributor (MVPD) services.
• Failure to enter into or renew affiliation or carriage agreements on favorable terms, or at all, for content distribution.
• The highly competitive nature of the industry in which the company's businesses operate.
• The popularity of the company's content, including special sports events, and the ability to renew programming rights on sufficiently favorable terms.
• Damage to the company's brands or reputation.
• Inability to realize the anticipated benefits of acquisitions, investments, and other strategic initiatives.
• Loss of key personnel.
• Labor disputes, including those involving professional sports leagues.
• Lower than expected valuations associated with reporting units, indefinite-lived intangible assets, investments, or long-lived assets.
• Degradation, failure, or misuse of the company's network and information systems, potentially causing service disruptions or improper disclosure of personal data.
• Content piracy and signal theft, and the company's ability to protect its intellectual property rights.
• Failure to comply with laws, regulations, rules, industry standards, or contractual obligations related to privacy and personal data protection.
• Changes in tax, federal communications, or other laws, regulations, practices, or their interpretation/enforcement.
• Impact of investigations or fines from governmental authorities, including FCC rules and policies.
• Failure or destruction of satellites or transmitter facilities essential for programming distribution.
• Unfavorable litigation outcomes or investigation results, such as the Smartmatic defamation lawsuit seeking $2.7 billion in damages, which could require significant payments or lead to onerous operating procedures.
• Derivative lawsuits alleging breach of fiduciary duties by directors and officers related to 2020 U.S. Presidential election fraud allegations.

Future Outlook

The company expects to continue paying semi-annual dividends, subject to Board approval. The accelerated share repurchase (ASR) transaction is anticipated to be completed during the second half of fiscal 2026. The Smartmatic defamation lawsuit trial is not expected to commence until later in 2026 at the earliest. The put right held by an entertainment production company's minority shareholder will become exercisable in fiscal 2027, and for a digital media company's minority shareholders in fiscal 2030.

Management Comments

• Management believes that Segment EBITDA is an appropriate measure for evaluating the operating performance of the company's operating segments because it is the primary measure used by the Chief Executive Officer to monitor actual versus budget and prior fiscal year financial results, forecast future periods, and perform competitive analyses to evaluate performance and allocate resources.
• The company intends to vigorously defend against the Smartmatic defamation lawsuit and other pending lawsuits alleging defamation or disparagement, believing them to be without merit.
• The company intends to continue to vigorously defend against the derivative lawsuits filed in the Delaware Court of Chancery.

Industry Context

StockSavvy.ai notes that Fox Corporation's performance reflects broader trends in the media industry, where traditional linear television faces subscriber declines, while digital platforms like Tubi show growth. The significant investment in the new direct-to-consumer streaming service, FOX One, aligns with the industry's shift towards streaming, but also incurs substantial launch and marketing costs, impacting short-term profitability. The increased sports programming rights costs highlight the escalating competition for premium live sports content, a key driver for subscriber retention and advertising revenue in a fragmented media landscape. The absence of political advertising revenue in the current period underscores the cyclical nature of advertising for broadcast media, making year-over-year comparisons challenging without adjusting for election cycles.

Comparison to Industry Standards

• NA

Management Changes

Corporate Governance

Legal Proceedings

• FOX News business and certain current/former employees are subject to allegations of sexual harassment and discrimination. Many claims resolved, others contested. Regulatory inquiries received. Amounts paid or reserved are not material individually or in aggregate. Ultimate resolution not anticipated to have a material adverse effect.
• Smartmatic USA Corp. filed a lawsuit in February 2021 seeking $2.7 billion in damages for defamation or disparagement. The company believes the claims are without merit and intends to defend vigorously. Summary judgment motions were argued on December 2, 2025, with no trial date set before late 2026. The company is unable to predict the final outcome and has determined a loss is neither probable nor reasonably estimable, but there is no assurance it won't have a material adverse effect.
• Stockholders filed derivative lawsuits in the Delaware Court of Chancery against certain directors and officers, alleging breach of fiduciary duties related to airing election fraud allegations in connection with the 2020 U.S. Presidential election. The motion to dismiss was denied on December 27, 2024, and limited discovery on director independence is ongoing. The company intends to vigorously defend against these claims.

Related Party Transactions

• The new stockholders agreement was entered into with LGC Holdco, LLC and certain Murdoch family trusts, which are related parties.

Stakeholder Impact

• Shareholders: Impacted by decreased net income and EPS, but also benefit from significant stock repurchases and continued semi-annual dividends. The new stockholders agreement affects voting power dynamics for Class B shares.
• Employees: Higher employee costs were noted in SG&A. Management adopted Rule 10b5-1 plans for stock option exercises and sales.
• Customers (MVPDs/Advertisers): Distribution revenue growth from higher rates, but also lower subscriber numbers. Advertising revenue growth from digital and sports, but offset by lower political advertising and ratings.
• Creditors: The company maintains a stable credit rating (Baa2/BBB Stable) and compliance with revolving credit facility covenants, indicating continued financial stability for debt holders.
• Regulatory Authorities: Ongoing legal proceedings and potential future investigations (e.g., FCC) could impact the company's operations and financial condition.

Next Steps

• Completion of the accelerated share repurchase (ASR) transaction during the second half of fiscal 2026.
• Payment of a semi-annual dividend of $0.28 per share on March 25, 2026.
• Continued defense against the Smartmatic defamation lawsuit, with a trial not expected until later in 2026 at the earliest.
• Continued defense against derivative lawsuits in the Delaware Court of Chancery.
• The put right held by an entertainment production company's minority shareholder will become exercisable in fiscal 2027.
• The put right held by a digital media company's minority shareholders will become exercisable in fiscal 2030.

Key Dates

Recommendation

While Fox Corporation's revenue growth is positive, the significant decline in net income and EPS, primarily driven by non-operating investment losses and substantial costs associated with the FOX One streaming service launch, presents a mixed picture. The increased cash burn from operations and financing activities, despite aggressive share repurchases, warrants caution. The ongoing high-stakes legal proceedings, particularly the Smartmatic defamation lawsuit, introduce considerable uncertainty. Given the strategic investments in streaming and sports rights, which are long-term plays, and the current financial headwinds, a 'hold' recommendation is appropriate. Investors should monitor the profitability trajectory of FOX One, the resolution of legal matters, and the impact of political advertising cycles on future earnings.

Keywords

Fox Corporation, FOXA, FOX, SEC Filing, 10-Q, Earnings Report, Media, Entertainment, News, Sports, Television, Cable Networks, Streaming, Tubi, FOX One, Advertising Revenue, Distribution Revenue, Share Repurchase, Dividends, Financial Results, Q2 2026, SEC, Corporate Governance, Legal Proceedings