FOXA.NASDAQFox CORP
10-Q: Fox Corporation Reports Mixed Results in Second Quarter Amidst Advertising Declines and Increased Affiliate Fees
Sentiment:
Quarterly Report
Fox Corporation's second quarter results show a decrease in revenue due to lower advertising income, partially offset by gains in affiliate fees and other revenues.
Worse than expectedThe company's net income and earnings per share were significantly lower than the previous year due to decreased advertising revenue and increased expenses in the Television segment.
Summary
- Fox Corporation's revenue decreased by 8% to $4.234 billion for the three months ended December 31, 2023, compared to $4.605 billion in the same period of the previous year.
- The decline in revenue was primarily driven by a 20% decrease in advertising revenue, which fell to $2.002 billion, due to the absence of the FIFA Men's World Cup and lower political advertising.
- Affiliate fee revenue increased by 4% to $1.787 billion, driven by higher fees from FOX Network affiliates and increased average rates per subscriber.
- Operating expenses decreased by 4% to $3.393 billion, mainly due to lower programming costs.
- Selling, general, and administrative expenses decreased by 10% to $495 million, primarily due to lower employee and legal costs.
- Net income attributable to Fox Corporation stockholders decreased by 65% to $109 million, or $0.23 per share, compared to $313 million, or $0.58 per share, in the prior year.
- For the six months ended December 31, 2023, revenue decreased by 5% to $7.441 billion, and net income attributable to Fox Corporation stockholders decreased by 44% to $516 million, or $1.06 per share.
Sentiment
Score: 4
Explanation: The sentiment is negative due to the significant decrease in net income and advertising revenue, despite some positive aspects like affiliate fee growth and cost reductions. The company faces considerable challenges in the current media landscape.
Positives
- Affiliate fee revenue increased by 4% due to higher rates and fees from FOX Network affiliates.
- Operating expenses decreased by 4% due to lower programming costs.
- Selling, general, and administrative expenses decreased by 10% due to lower employee and legal costs.
- The company repurchased approximately 24 million shares of Class A Common Stock for approximately $500 million during the six months ended December 31, 2023.
Negatives
- Total revenue decreased by 8% year-over-year.
- Advertising revenue decreased by 20% due to the absence of the FIFA Men's World Cup and lower political advertising.
- Net income attributable to Fox Corporation stockholders decreased by 65% to $109 million.
- The Television segment experienced a significant decrease in Segment EBITDA, down $394 million for the quarter.
Risks
- The company faces risks related to evolving technologies and distribution platforms, which could impact advertising revenue and subscriber numbers.
- Declines in advertising expenditures due to economic conditions, major sports events, and election cycles could negatively affect revenue.
- The company is exposed to the risk of further declines in the number of subscribers to MVPD services.
- Failure to renew programming rights, particularly sports programming rights, on favorable terms could impact the business.
- The company is subject to potential losses due to asset impairment charges for goodwill, intangible assets, programming, and other assets and investments.
- The company is involved in ongoing legal proceedings, including defamation and disparagement claims, which could have a material adverse effect on its business.
Future Outlook
The company's future performance is subject to various risks and uncertainties, including evolving technologies, changes in consumer behavior, and economic conditions. The company will continue to evaluate possible acquisitions and dispositions of certain businesses and assets.
Management Comments
- Management believes that Segment EBITDA is an appropriate measure for evaluating the operating performance of the Company's business segments.
- Management believes that information about Adjusted EBITDA assists all users of the Company's Financial Statements by allowing them to evaluate changes in the operating results of the Company's portfolio of businesses separate from non-operational factors that affect Net income.
Industry Context
The results reflect the ongoing challenges in the media industry, including declining advertising revenue and shifts in consumer behavior towards digital platforms. The company is navigating these challenges by focusing on affiliate fees, sports sublicensing, and growth in its AVOD service, Tubi.
Comparison to Industry Standards
- Fox's performance is mixed compared to peers in the media industry. While affiliate fee growth is a positive, the significant decline in advertising revenue is a concern.
- Companies like Paramount and Warner Bros. Discovery are also facing similar challenges in linear TV advertising, but some are seeing stronger growth in streaming services.
- Fox's reliance on sports programming rights is a double-edged sword, providing strong viewership but also high costs.
- The company's performance in the television segment is notably weaker than some competitors who have diversified their revenue streams more effectively.
Management Changes
| Role | Previous Person | New Person | Effective Date | Reason |
|---|---|---|---|---|
| Chief Financial Officer | Steven Tomsic | 2023-07-01 | Increased Target Bonus |
Legal Proceedings
- The company is involved in ongoing legal proceedings, including defamation and disparagement claims.
- The company has resolved many sexual harassment and discrimination claims and is contesting others in litigation.
Stakeholder Impact
- Shareholders are negatively impacted by the decrease in net income and earnings per share.
- Employees may be affected by cost-cutting measures and changes in the company's strategy.
- Customers may see changes in programming and content offerings.
- Suppliers and creditors may be impacted by the company's financial performance.
Next Steps
- The company will continue to evaluate possible acquisitions and dispositions of certain businesses and assets.
- The company will continue to monitor and manage its programming rights and costs.
- The company will continue to focus on growing its digital businesses, including Tubi.
Key Dates
| Date | Description |
|---|---|
| 2019-03-19 | Original Employment Agreement for Steven Tomsic. |
| 2021-02-01 | Date related to Smartmatic legal proceedings. |
| 2021-03-01 | Date related to Dominion legal proceedings. |
| 2021-11-10 | Amendment to Steven Tomsic's Employment Agreement. |
| 2023-02-01 | Start date of accelerated share repurchase program. |
| 2023-02-08 | Date of initial delivery of shares under accelerated share repurchase program. |
| 2023-02-28 | End date of accelerated share repurchase program. |
| 2023-04-01 | Date related to Dominion legal proceedings. |
| 2023-04-11 | Date of first derivative lawsuit filed by stockholders. |
| 2023-04-18 | Date of settlement agreement with Dominion. |
| 2023-04-20 | Date of second derivative lawsuit filed by stockholders. |
| 2023-06-30 | End of fiscal year 2023. |
| 2023-07-01 | Effective date of increased Target Bonus for Steven Tomsic. |
| 2023-08-01 | Start date of final delivery of shares under accelerated share repurchase program. |
| 2023-08-11 | Filing date of the 2023 Form 10-K. |
| 2023-08-31 | End date of final delivery of shares under accelerated share repurchase program. |
| 2023-09-12 | Date of additional derivative lawsuits filed by stockholders. |
| 2023-09-30 | End of fiscal quarter. |
| 2023-10-01 | Start of fiscal quarter. |
| 2023-10-31 | Date related to senior notes. |
| 2023-11-02 | Filing date of the Q1 2024 Form 10-Q. |
| 2023-11-17 | Date of letter agreement increasing Steven Tomsic's Target Bonus. |
| 2023-12-31 | End of the reporting period for this 10-Q. |
| 2024-01-01 | Maturity date of senior notes. |
| 2024-01-12 | Launch date of the United Football League (UFL). |
| 2024-02-05 | Date of outstanding shares calculation. |
| 2024-02-07 | Filing date of this 10-Q. |
| 2024-02-28 | Date related to accelerated share repurchase program. |
| 2024-03-06 | Record date for semi-annual dividend. |
| 2024-03-26 | Payment date for semi-annual dividend. |
| 2028-06-01 | Maturity date of revolving credit facility. |
Keywords
advertising revenue, affiliate fees, programming costs, net income, stock repurchase, senior notes, sports programming, legal costs, MVPD, Tubi
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