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Category: Stock Market and Fox Corporation
Date: 10 May 2020 Stock Price: $26 We take a look at the 3rd quarter earnings release of their 2020 fiscal year of Fox Corporation a media firm that produces and distributes news, sports and entertainment content.
While we remain focused on continuing to execute against the strategy that drove this strong performance, we are acutely mindful of the global health crisis and its countless impacts" |
About Fox Corporation
Fox Corporation produces and distributes compelling news, sports and entertainment content through its iconic domestic brands including: FOX News, FOX Sports, FOX Entertainment, and the FOX Television Stations. These brands hold cultural significance with consumers and commercial importance for distributors and advertisers. The breadth and depth of our footprint allows us to deliver content that engages and informs audiences, develops deeper consumer relationships and creates more compelling product offerings. FOX maintains an impressive track record of news, sports, and entertainment industry success that will shape our strategy to capitalize on current strengths and invest in new initiatives.
Overview of Fox Corporation 3rd quarter 2020 earnings report
The data below refers to the most recent quarter unless specified otherwise:
- Revenues: $3.440 billion (up from $2.752 billion for the same quarter of the previous year)
- Revenue decreased by 25% over the last 12 months
- Operating expenses: $2.061 billion (up from $1.660 billion for the same quarter of the previous year)
- Operating expenses increased by 24.1% over the last 12 months
- Some margin gain for Fox Corporation with their revenues increased at a rate faster than their operating expenses
- Net income: $78 million (down from $529 million for the same quarter of the previous year)
- Diluted earnings per share: $0.13 (down from $0.85 for the same quarter of the previous year)
- PE ratio of Fox Corporation : 12
- Diluted weighted-average shares outstanding: 612 million (down from 621 million for the same quarter of the previous year)
- Cash and cash equivalents: $3.196 billion
- Cash and cash equivalents per share: $5.22
- Cash and cash equivalents makes up 4.98% of Fox Corporation market capital
- Cash and cash equivalents makes up 15.8% of Fox Corporation total assets
- Stockholders equity in Fox Corporation: $10.133 billion
- Stockholders equity per share in Fox Corporation: $16.55
- Fox Corporation is trading at 1.57 times its stockholders equity per share which is outside the expected range of between 2 and 4 times that most firms tend to trade at.
- For perspective the average price to book value of firms in the S&P 500 is 3.34. Read more about the S&P500 here.
- Cash generated from operations (for 9 months): $1.345 billion
- Cash generated from operations per share (9 months): $2.19
Fox Corporation management commentary on their 3rd quarter 2020 earnings report
NEW YORK, NY, May 6, 2020 – Fox Corporation (Nasdaq: FOXA, FOX) (“FOX” or the “Company”) today reported financial results for the three months ended March 31, 2020.
Commenting on the results, Executive Chairman and Chief Executive Officer Lachlan Murdoch said: “We delivered exceptional operational and financial results in the quarter, highlighted by our successful broadcast of Super Bowl LIV on FOX. While we remain focused on continuing to execute against the strategy that drove this strong performance, we are acutely mindful of the global health crisis and its countless impacts. Our highest priority remains the safety and well-being of our employees and their families. Due to the selfless dedication of many of our colleagues, the strength of FOX has been on display throughout the crisis as we continue to provide news, information, entertainment and assistance to communities around the country. As we eventually emerge, we are confident that FOX’s focused collection of assets – centered on live and event programming – will be even more in-demand by advertisers and audiences alike, positioning us well for the future and enabling us to maximize long-term shareholder value.”
Commenting on the results, Executive Chairman and Chief Executive Officer Lachlan Murdoch said: “We delivered exceptional operational and financial results in the quarter, highlighted by our successful broadcast of Super Bowl LIV on FOX. While we remain focused on continuing to execute against the strategy that drove this strong performance, we are acutely mindful of the global health crisis and its countless impacts. Our highest priority remains the safety and well-being of our employees and their families. Due to the selfless dedication of many of our colleagues, the strength of FOX has been on display throughout the crisis as we continue to provide news, information, entertainment and assistance to communities around the country. As we eventually emerge, we are confident that FOX’s focused collection of assets – centered on live and event programming – will be even more in-demand by advertisers and audiences alike, positioning us well for the future and enabling us to maximize long-term shareholder value.”
ACQUISITION OF TUBI, INC. AND SALE OF STAKE IN ROKU, INC.
In April, the Company completed its acquisition of Tubi Inc., a leading free ad-supported streaming service, for approximately $445 million in net cash consideration at closing. The Company financed the Tubi acquisition principally with the net proceeds of approximately $340 million from the sale of its stake in Roku, Inc. in March. The Company purchased its stake in Roku, Inc. for approximately $40 million. The Company recorded a loss of approximately $470 million during the quarter ended March 31, 2020 due to the change in fair value of the Company’s investment in Roku, Inc. prior to disposition, which is recognized in net income in accordance with United States generally accepted accounting principles (“GAAP”). This loss, along with other gains or losses on investments, non-recurring, infrequent or unusual items, are excluded from Adjusted EBITDA and adjusted net income and adjusted earnings per share attributable to Fox Corporation stockholders. See Notes 1 and 2 for more information about these non GAAP financial measures.
IMPACT OF COVID-19
The impact of COVID-19 and measures to prevent its spread are affecting the macroeconomic environment, as well as the business of the Company, in a number of ways. For example, while the Company’s national news ratings remain strong, sporting events for which the Company has broadcast rights have been cancelled or postponed, the production of certain entertainment content the Company acquires has been suspended and demand in local advertising markets has declined. The magnitude of the impacts will depend on the duration and extent of COVID-19 and the effect of governmental actions, consumer behavior and actions taken by the Company’s business partners in response to the pandemic and such governmental actions.
The evolving and uncertain nature of this situation makes it challenging for the Company to estimate the future performance of its businesses, particularly over the near to medium term, including the supply and demand for its services, its cash flows and its current and future advertising revenue. However, the impact of COVID-19 could have a material adverse effect on the Company’s business, financial condition or results of operations over the near to medium term. A significant decline in estimated advertising revenue or the expected popularity of the Company’s programming could lead to a downward revision in the fair value of, among other things, the Company’s reporting units, indefinite-lived intangible assets and long-lived assets and result in an impairment and a non-cash charge that is material to the Company’s reported net earnings
In April, the Company completed its acquisition of Tubi Inc., a leading free ad-supported streaming service, for approximately $445 million in net cash consideration at closing. The Company financed the Tubi acquisition principally with the net proceeds of approximately $340 million from the sale of its stake in Roku, Inc. in March. The Company purchased its stake in Roku, Inc. for approximately $40 million. The Company recorded a loss of approximately $470 million during the quarter ended March 31, 2020 due to the change in fair value of the Company’s investment in Roku, Inc. prior to disposition, which is recognized in net income in accordance with United States generally accepted accounting principles (“GAAP”). This loss, along with other gains or losses on investments, non-recurring, infrequent or unusual items, are excluded from Adjusted EBITDA and adjusted net income and adjusted earnings per share attributable to Fox Corporation stockholders. See Notes 1 and 2 for more information about these non GAAP financial measures.
IMPACT OF COVID-19
The impact of COVID-19 and measures to prevent its spread are affecting the macroeconomic environment, as well as the business of the Company, in a number of ways. For example, while the Company’s national news ratings remain strong, sporting events for which the Company has broadcast rights have been cancelled or postponed, the production of certain entertainment content the Company acquires has been suspended and demand in local advertising markets has declined. The magnitude of the impacts will depend on the duration and extent of COVID-19 and the effect of governmental actions, consumer behavior and actions taken by the Company’s business partners in response to the pandemic and such governmental actions.
The evolving and uncertain nature of this situation makes it challenging for the Company to estimate the future performance of its businesses, particularly over the near to medium term, including the supply and demand for its services, its cash flows and its current and future advertising revenue. However, the impact of COVID-19 could have a material adverse effect on the Company’s business, financial condition or results of operations over the near to medium term. A significant decline in estimated advertising revenue or the expected popularity of the Company’s programming could lead to a downward revision in the fair value of, among other things, the Company’s reporting units, indefinite-lived intangible assets and long-lived assets and result in an impairment and a non-cash charge that is material to the Company’s reported net earnings
Fox Corporation (NASDAQ:FOXA) stock price history
The image below, obtained from Google, shows the stock price history of Fox Corporation (NASDAQ: FOXA) over the last 5 years. And it's stock price basically went nowhere over the last 5 years. Over the last 5 years ago the stock of Fox Corporation was trading at around $25 a stock and its currently trading at $26. That's a flat return of 4% provided to Fox Corporation stockholders over the last 5 years.
Fox Corporation stock is trading at closer to its 52 week low of $19.81 and far away from its 52 week high of $39.74 which to us is a clear indication that the short term sentiment and momentum of Fox Corporation stock is negative at this point in time.
Fox Corporation stock is trading at closer to its 52 week low of $19.81 and far away from its 52 week high of $39.74 which to us is a clear indication that the short term sentiment and momentum of Fox Corporation stock is negative at this point in time.
Recent Google search trends for FOXA stock price
The graphic below shows the Google search trends for FOXA stock price over the last 12 months in the United States as obtained from Google Trends. As the graphic shows the searches for Fox Corporation steadily increased since early March 2020. Coinciding with a drop in the stock price of the group.
Recent coverage of Fox Corporation
The extract below shows recent coverage of Fox Corporation as obtained from TheStreet.com
Shares of Fox Corporation (NASDAQ:FOX)(NASDAQ:FOXA) headed higher on Thursday after the company showed its business is holding up well during the COVID-19 pandemic. Both its Class A shares and Class B shares were 9% higher during early trading, before fading later in the session. What might be most surprising for investors is Fox's ad revenue, which in the third quarter of fiscal 2020 grew a whopping 44% year over year.
So what
The coronavirus has affected consumer spending, which makes companies cut their advertising budgets. Consider that competitor ViacomCBS's advertising revenue only increased 2% in its most recent quarter, even after accounting for the impact from lost sporting events. By contrast, Fox saw incredible growth.
There are two big reasons for Fox's strong quarter. First, Fox News was already incredibly popular among viewers. But in Q3, its viewership among adults age 25 to 54 nearly doubled. That's a desirable target demographic, and advertisers spent their money on Fox, where the eyeballs were. Second, 40% of Fox's ad revenue comes from live sports. Companies like ViacomCBS were hurt because sporting events were canceled. But the bulk of Fox's sports revenue comes from the NFL and college football, two sports that haven't started yet. Had the COVID-19 outbreak occurred during the fall rather than the spring, this could have been a very different story.
Read the full article here
Shares of Fox Corporation (NASDAQ:FOX)(NASDAQ:FOXA) headed higher on Thursday after the company showed its business is holding up well during the COVID-19 pandemic. Both its Class A shares and Class B shares were 9% higher during early trading, before fading later in the session. What might be most surprising for investors is Fox's ad revenue, which in the third quarter of fiscal 2020 grew a whopping 44% year over year.
So what
The coronavirus has affected consumer spending, which makes companies cut their advertising budgets. Consider that competitor ViacomCBS's advertising revenue only increased 2% in its most recent quarter, even after accounting for the impact from lost sporting events. By contrast, Fox saw incredible growth.
There are two big reasons for Fox's strong quarter. First, Fox News was already incredibly popular among viewers. But in Q3, its viewership among adults age 25 to 54 nearly doubled. That's a desirable target demographic, and advertisers spent their money on Fox, where the eyeballs were. Second, 40% of Fox's ad revenue comes from live sports. Companies like ViacomCBS were hurt because sporting events were canceled. But the bulk of Fox's sports revenue comes from the NFL and college football, two sports that haven't started yet. Had the COVID-19 outbreak occurred during the fall rather than the spring, this could have been a very different story.
Read the full article here
Fox Corporation (NASDAQ: FOXA) latest stock valuation
So based on Fox Corporation 3rd quarter 2020 earnings report what do we value Fox Corporation stock at? Based on Fox Corporation's earnings reported our valuation model provides a target price (full value price) for Fox Corporation at $34.70 a stock
We therefore believe that the stock of Fox Corporation stock is fully valued. We usually recommend long term fundamental or value investors look to enter a stock at least 10% below our target price, which in this case is $34.70 A good entry price into Fox Corporation stock would therefore be at $31.20 or below.
We expect the stock of Fox Corporation to trade in a narrow range around its current price in coming weeks and months.
We therefore believe that the stock of Fox Corporation stock is fully valued. We usually recommend long term fundamental or value investors look to enter a stock at least 10% below our target price, which in this case is $34.70 A good entry price into Fox Corporation stock would therefore be at $31.20 or below.
We expect the stock of Fox Corporation to trade in a narrow range around its current price in coming weeks and months.
Next earnings release of Fox Corporation
It is expected that Fox Corporation will release their 4th quarter and full fiscal 2020 earnings release in early August 2020