These Three Factors Could Drive Growth For 21st Century Fox In Future

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For Q4 2016, 21st Century Fox (NYSE:FOX) beat earnings estimates on the back of higher affiliate fessand advertising revenue. We are bullish on the company and believe that Fox’s focus on premium content will continue to drive advertising revenue for the company. As an increasing number of consumers prefer streaming media and watch content over the internet, Fox’s stake in Hulu and its strategy to provide content to other streaming media players will be another growth factor for the company, in our view. The success of its film “Deadpool” is an indication of the company’s strong film studio business and this segment can be another pillar of growth for Fox over the long term.

Premium Content Driving Advertising Revenue Growth

One of the strategic objectives for Fox is to create standout content to drive revenues. Demand is on the rise for premium content such as live sports, news and scripted entertainment and the company is investing in high quality programming to monetize this opportunity.  Fox’s business network is gaining viewership and it recently beat rival CNBC in business day ratings for the first time ever. According to our estimates, Advertising and Subscription is the most valuable segment for Fox accounting for more than 50% of its valuation. We expect Fox’s advertising, international and other revenues to grow steadily from around $ 10 billion in 2016 to $ 15 billion by the end of our forecast period.

 

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As the company continues focus on its content, ratings of Fox’s networks are likely to remain high, driving advertising and subscription revenue growth in the long term.                                 

Streaming Media

As an increasing number of consumers move away from Pay-TV into video on demand, Fox’s online streaming strategy is critical for its long term growth. The company holds 30% stake in Netflix’s competitor Hulu and as the company focuses on high quality content for this service, it can witness significant growth. Hulu also plans to launch live streaming TV next year, which can boost its revenues. Fox has arrangements with other online TV streaming players (including Sling TV and Sony)  to provide its content.  All three of these  emerging platforms can increase the distribution channels for Fox, thus driving its revenues in the long term.

Movie And TV Shows Production

According to our estimates, Movies and TV Shows Production accounts for nearly 20% of Fox’s valuation and we expect licensing revenues from this segment to increase gradually from around $5.5 billion in 2016 to around $7.8 billion by the end of our forecast period.

 

As the number of distribution channels increases, with social media players also looking for interesting and differentiated content, this segment can become a pillar of Fox’s growth in future. While some of its major releases in 2016 did not meet expectations the company is striving to be consistent in its performance for the film studio. We believe as demand for high quality content increases, Fox’s focus on consistency in movies and good quality TV shows should drive revenues for the company in the long term.

 

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