FOX (FOXA)

Underperform
FOX is up against the odds. Its sluggish sales growth shows demand is soft, a worrisome sign for investors in high-quality stocks. StockStory Analyst Team
Anthony Lee, Lead Equity Analyst
Max Juang, Equity Analyst

1. News

2. Summary

Underperform

Why We Think FOX Will Underperform

Founded in 1915, Fox (NASDAQ:FOXA) is a diversified media company, operating prominent cable news, television broadcasting, and digital media platforms.

  • Estimated sales decline of 4.3% for the next 12 months implies a challenging demand environment
  • Scale is a double-edged sword because it limits the company's growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 3.9% for the last two years
  • One positive is that its healthy operating margin shows it’s a well-run company with efficient processes
FOX falls below our quality standards. We’re looking for better stocks elsewhere.
StockStory Analyst Team

Why There Are Better Opportunities Than FOX

FOX’s stock price of $53.82 implies a valuation ratio of 13.6x forward P/E. FOX’s multiple may seem like a great deal among consumer discretionary peers, but we think there are valid reasons why it’s this cheap.

Cheap stocks can look like a great deal at first glance, but they can be value traps. They often have less earnings power, meaning there is more reliance on a re-rating to generate good returns - an unlikely scenario for low-quality companies.

3. FOX (FOXA) Research Report: Q1 CY2025 Update

Cable news and media network Fox (NASDAQ:FOXA) beat Wall Street’s revenue expectations in Q1 CY2025, with sales up 26.8% year on year to $4.37 billion. Its non-GAAP profit of $1.10 per share was 22.6% above analysts’ consensus estimates.

FOX (FOXA) Q1 CY2025 Highlights:

  • Revenue: $4.37 billion vs analyst estimates of $4.19 billion (26.8% year-on-year growth, 4.3% beat)
  • Adjusted EPS: $1.10 vs analyst estimates of $0.90 (22.6% beat)
  • Adjusted EBITDA: $856 million vs analyst estimates of $734.9 million (19.6% margin, 16.5% beat)
  • Operating Margin: 10.8%, down from 22.9% in the same quarter last year
  • Free Cash Flow Margin: 44.4%, up from 40.4% in the same quarter last year
  • Market Capitalization: $21.95 billion

Company Overview

Founded in 1915, Fox (NASDAQ:FOXA) is a diversified media company, operating prominent cable news, television broadcasting, and digital media platforms.

FOX was initially established to meet early 20th-century demands for entertainment and news. Over the decades, the company has significantly evolved, branching into various media segments and adopting digital platforms.

FOX provides a broad spectrum of media services including news coverage, sports broadcasting, and other entertainment. FOX caters to a large audience, seeking engagement with diverse viewers, from news aficionados to entertainment consumers.

The company's revenue is primarily derived from advertising, subscription fees, and content licensing. Furthermore, it must produce quality content to maintain its channel space.

A notable aspect of FOX's value proposition is its focus on delivering content that resonates with specific viewer segments, particularly those seeking a certain perspective on news and entertainment. This targeted content strategy has enabled FOX to carve out a niche in the competitive media landscape.

4. 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.

Competitors in the media and entertainment industry include Comcast Corporation (NASDAQ:CMCSA), Walt Disney (NYSE:DIS), and Paramount Global (NASDAQ:PARA).

5. Sales Growth

Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Regrettably, FOX’s sales grew at a sluggish 5.4% compounded annual growth rate over the last five years. This fell short of our benchmark for the consumer discretionary sector and is a poor baseline for our analysis.

FOX Quarterly Revenue

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 performance shows its demand has slowed as its annualized revenue growth of 3.9% over the last two years was below its five-year trend. FOX Year-On-Year Revenue Growth

We can dig further into the company’s revenue dynamics by analyzing its most important segments, Advertising and Affiliate, which are 46.6% and 45.9% of revenue. Over the last two years, FOX’s Advertising revenue (marketing services) averaged 4.5% year-on-year growth while its Affiliate revenue (licensing and retransmission fees) averaged 4.2% growth.

This quarter, FOX reported robust year-on-year revenue growth of 26.8%, and its $4.37 billion of revenue topped Wall Street estimates by 4.3%.

Looking ahead, sell-side analysts expect revenue to decline by 5.2% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and implies its products and services will see some demand headwinds.

6. Operating Margin

FOX’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 17.4% over the last two years. This profitability was top-notch for a consumer discretionary business, showing it’s an well-run company with an efficient cost structure.

FOX Trailing 12-Month Operating Margin (GAAP)

This quarter, FOX generated an operating profit margin of 10.8%, down 12 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

7. Earnings Per Share

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

FOX’s EPS grew at a decent 12.1% compounded annual growth rate over the last five years, higher than its 5.4% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t expand.

FOX Trailing 12-Month EPS (Non-GAAP)

In Q1, FOX reported EPS at $1.10, in line with the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects FOX’s full-year EPS of $4.41 to shrink by 10.1%.

8. 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 decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 11.5% over the last two years, slightly better than the broader consumer discretionary sector.

FOX Trailing 12-Month Free Cash Flow Margin

FOX’s free cash flow clocked in at $1.94 billion in Q1, equivalent to a 44.4% margin. This result was good as its margin was 4 percentage points higher than 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.

9. Return on Invested Capital (ROIC)

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

FOX’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 15.7%, slightly better than typical consumer discretionary business.

FOX Trailing 12-Month Return On Invested Capital

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Uneventfully, FOX’s ROIC has stayed the same over the last few years. Given the company’s underwhelming financial performance in other areas, we’d like to see its returns improve before recommending the stock.

10. Balance Sheet Assessment

FOX reported $4.82 billion of cash and $7.20 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

FOX Net Debt Position

With $3.46 billion of EBITDA over the last 12 months, we view FOX’s 0.7× net-debt-to-EBITDA ratio as safe. We also see its $232 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

11. Key Takeaways from FOX’s Q1 Results

We enjoyed seeing FOX beat analysts’ revenue, EPS, and EBITDA expectations this quarter. Zooming out, we think this quarter featured some important positives. The stock traded up 1.4% to $51 immediately following the results.

12. Is Now The Time To Buy FOX?

Updated: June 12, 2025 at 10:41 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in FOX.

We cheer for all companies serving everyday consumers, but in the case of FOX, we’ll be cheering from the sidelines. To kick things off, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while FOX’s strong operating margins show it’s a well-run business, its projected EPS for the next year is lacking.

FOX’s P/E ratio based on the next 12 months is 13.6x. This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $56.90 on the company (compared to the current share price of $53.82).