Fox Beats Q4 Estimates On The Back Of Gains In Cable Networks, Studio Performance

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With a potential transformation approaching, 21st Century Fox (NYSE: FOX) reported solid fiscal fourth quarter results – as both its revenues and earnings per share came in ahead of market expectations. In Q4, the company’s overall revenue grew 18% year-over-year (y-0-y) to $7.9 billion, driven largely by double-digit gains across operating segments. The company’s Cable Networks saw affiliate fee and advertising growth, and the Television segment benefited from higher retransmission consent revenue as well as better advertising revenue driven by the World Cup. In addition, Filmed Entertainment revenues were boosted by Deadpool 2 as well as higher contributions from TV production of animated and library series. Fox also reported adjusted net profits of $1 billion, up 60% y-o-y.

Fox’s stock price has grown almost 30% over the course of 2018. We have maintained a long-term price estimate of $43 for Fox’s stock, which is slightly below the current market price.

Cable Networks Continues To Grow In Q4

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In Q4, Fox’s Cable Networks revenues grew 14% y-o-y, and its EBITDA increased 12% over last year, on the back of higher affiliate, syndication and advertising revenues. However, the segment also incurred a 15% increase in its expenses, due to sports broadcasts and higher programming and marketing costs at FX Networks with more original series episodes airing in the quarter. Fox News remained the most-viewed cable network for the June quarter in both primetime and total day, its second year in a row on top of the ratings.

Sky Battle Impending

Fox has had a productive run thus far, and the recent approval of the AT&T-Time Warner deal had opened up a bidding war for Fox’s assets between Disney and Comcast. This eventually resulted in Disney boosting its offer to $71.3 billion in cash and stock from its previous $52.4B all-stock deal. Fox is being reconstituted into a new company that will be centered around its broadcast channel, Fox News, sports channel FS1, and other television assets, once the merger is finalized. Disney reported in its Q3 earnings call that the timing of the deal closing will depend on whether Fox acquires full ownership of European satellite-TV provider Sky, as well as the amount of the proceeds from the regional sports network disposition.

Fox is engaged in a bidding war with Comcast for the 61% share of Sky, which it has been trying to buy for nearly 18 months. Fox already owns the remaining 39% of Sky. Both companies see Sky as a vital platform for furthering their content and OTT strategies in international growth markets. As a result, Comcast recently formalized a £14.75 per share offer to buy Sky, which values the broadcaster at £25.9 billion($33 billion), exceeding Fox’s £14 per share offer. Under U.K. takeover rules, Fox has to submit a new raised bid for Sky by September 22 to stay in the running.

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