Cable news and media network Fox (NASDAQ:FOXA) reported Q3 CY2024 results exceeding the market’s revenue expectations, with sales up 11.1% year on year to $3.56 billion. Its non-GAAP profit of $1.45 per share was also 26.1% above analysts’ consensus estimates.
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FOX (FOXA) Q3 CY2024 Highlights:
- Revenue: $3.56 billion vs analyst estimates of $3.37 billion (5.7% beat)
- Adjusted EPS: $1.45 vs analyst estimates of $1.15 (26.1% beat)
- EBITDA: $1.05 billion vs analyst estimates of $891.6 million (17.5% beat)
- Gross Margin (GAAP): 43.4%, up from 41.9% in the same quarter last year
- Operating Margin: 29.3%, up from 24% in the same quarter last year
- EBITDA Margin: 29.4%, up from 27.1% in the same quarter last year
- Free Cash Flow was $94 million, up from -$70 million in the same quarter last year
- Market Capitalization: $18.48 billion
Company Overview
Founded in 1915, Fox (NASDAQ:FOXA) is a diversified media company, operating prominent cable news, television broadcasting, and digital media platforms.
Broadcasting
Broadcasting companies have been facing secular headwinds in the form of consumers abandoning traditional television and radio in favor of streaming services. As a result, many broadcasting companies have evolved by forming distribution agreements with major streaming platforms so they can get in on part of the action, but will these subscription revenues be as high quality and high margin as their legacy revenues? Only time will tell which of these broadcasters will survive the sea changes of technological advancement and fragmenting consumer attention.
Sales Growth
A company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, FOX’s sales grew at a sluggish 4.5% compounded annual growth rate over the last five years. This shows it failed to expand in any major way, a rough starting point for our analysis.
Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. FOX’s recent history shows its demand slowed as its revenue was flat over the last two years.
We can better understand the company’s revenue dynamics by analyzing its most important segments, Advertising and Affiliate, which are 37.3% and 51.7% of revenue. Over the last two years, FOX’s Advertising revenue (marketing services) was flat while its Affiliate revenue (licensing and retransmission fees) averaged 3.6% year-on-year growth.
This quarter, FOX reported year-on-year revenue growth of 11.1%, and its $3.56 billion of revenue exceeded Wall Street’s estimates by 5.7%.
Looking ahead, sell-side analysts expect revenue to grow 4.7% over the next 12 months, an improvement versus the last two years. While this projection indicates the market believes its newer products and services will spur better performance, it is still below average for the sector.
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Cash Is King
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
FOX has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 9.7%, subpar for a consumer discretionary business. The divergence from its good operating margin stems from its capital-intensive business model, which requires FOX to make large cash investments in working capital and capital expenditures.
FOX’s free cash flow clocked in at $94 million in Q3, equivalent to a 2.6% margin. Its cash flow turned positive after being negative in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends carry greater meaning.
Key Takeaways from FOX’s Q3 Results
We were impressed by how significantly FOX blew past analysts’ EBITDA and EPS expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates. Zooming out, we think this was a solid quarter. The stock traded up 4% to $43.51 immediately after reporting.
FOX had an encouraging quarter, but one earnings result doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.