Stock Story -
Cable news and media network Fox (NASDAQ:FOXA) reported results in line with analysts' expectations in Q2 FY2024, with revenue down 8.1% year on year to $4.23 billion. It made a non-GAAP profit of $0.34 per share, down from its profit of $0.48 per share in the same quarter last year.
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FOX (FOXA) Q2 FY2024 Highlights:
- Revenue: $4.23 billion vs analyst estimates of $4.21 billion (small beat)
- EPS (non-GAAP): $0.34 vs analyst estimates of $0.12 ($0.22 beat)
- Free Cash Flow was -$615 million compared to -$70 million in the previous quarter
- Gross Margin (GAAP): 19.9%, down from 23.4% in the same quarter last year
- Market Capitalization: $14.73 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 GrowthA company's long-term performance can indicate its business quality. Any business can enjoy short-lived success, but best-in-class ones sustain growth over many years. FOX's annualized revenue growth rate of 5.8% over the last 5 years was weak for a consumer discretionary business. Within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. FOX's recent history shows the business has slowed, as its annualized revenue growth of 3.5% over the last 2 years is below its 5-year trend.
We can dig even further into the company's revenue dynamics by analyzing its most important segments, Cable Network Programming and Television, which are 39.2% and 60% of revenue. Over the last 2 years, FOX's Cable Network Programming revenue (licensing, retransmission, advertising) was flat while its Television revenue (advertising) averaged 7.3% year-on-year growth.
This quarter, FOX reported a rather uninspiring 8.1% year-on-year revenue decline to $4.23 billion of revenue, in line with Wall Street's estimates. Looking ahead, Wall Street expects revenue to remain flat over the next 12 months.
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.
Over the last two years, FOX has shown decent cash profitability, giving it some reinvestment opportunities. The company's free cash flow margin has averaged 12%, slightly better than the broader consumer discretionary sector.
FOX burned through $615 million of cash in Q2, equivalent to a negative 14.5% margin, in line with its cash burn last year. Over the next year, analysts predict FOX's cash profitability will improve. Their consensus estimates imply its LTM free cash flow margin of 8.1% will increase to 11.6%.
Key Takeaways from FOX's Q2 Results We were impressed by how significantly FOX blew past analysts' EBITDA and EPS estimates this quarter. Its revenue, although down year on year, also slightly beat thanks to better-than-expected affiliate (retransmission fee) and advertising revenue. Revenue was down this quarter because of the absence of FIFA Men's World Cup games. This headwind, however, was partially offset by its renewed NFL contract. Overall, this quarter's results seemed fairly positive and shareholders should feel optimistic. The stock is up 5% after reporting and currently trades at $33.2 per share.