Stock Story -
Cable news and media network Fox (NASDAQ:FOXA) reported results in line with analysts' expectations in Q2 CY2024, with revenue up 2% year on year to $3.09 billion. It made a non-GAAP profit of $0.90 per share, improving from its profit of $0.88 per share in the same quarter last year.
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FOX (FOXA) Q2 CY2024 Highlights:
- Revenue: $3.09 billion vs analyst estimates of $3.10 billion (small miss)
- Adjusted EBITDA: $773 million vs analyst estimates of $684 million (13.0% beat)
- EPS (non-GAAP): $0.90 vs analyst estimates of $0.80 (12.5% beat)
- Gross Margin (GAAP): 158%, up from 41.4% in the same quarter last year
- Adjusted EBITDA Margin: 25%, in line with the same quarter last year
- Free Cash Flow of $1.13 billion, down 18.7% from the previous quarter
- Market Capitalization: $16.42 billion
BroadcastingBroadcasting 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 GrowthExamining a company's long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, FOX's 4.2% annualized revenue growth over the last five years was weak. This shows it failed to expand in any major way and is a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. FOX's recent history shows its demand slowed as its revenue was flat over the last two years.
FOX also breaks out the revenue for its most important segments, Advertising and Affiliate, which are 32.6% and 60.1% of revenue. Over the last two years, FOX's Advertising revenue (marketing services) was flat while its Affiliate revenue (licensing and retransmission fees) averaged 3.2% year-on-year growth.
This quarter, FOX grew its revenue by 2% year on year, and its $3.09 billion of revenue was in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 7.7% over the next 12 months, an acceleration from this quarter.
Cash Is KingAlthough earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
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 11.4% over the last two years, slightly better than the broader consumer discretionary sector.
FOX's free cash flow clocked in at $1.13 billion in Q2, equivalent to a 36.6% margin. This quarter's result was good as its margin was 24.3 percentage points higher than in the same quarter last year, but we wouldn't put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends carry greater meaning.
Over the next year, analysts' consensus estimates show they're expecting FOX's free cash flow margin of 13.2% for the last 12 months to remain the same.
Key Takeaways from FOX's Q2 Results It was good to see FOX beat analysts' adjusted EBITDA and EPS expectations this quarter by convincing amounts. Overall, this quarter seemed fairly positive. The stock remained flat at $36.30 immediately after reporting.
