Shifting Consumer Trends Will Undermine Legacy TV Appeal

Key Takeaways

• Declining traditional TV viewership and rising content costs threaten Fox's core revenue streams and long-term profitability.
  
• Slow digital growth and regulatory risks could undermine audience stability and the company's ability to adapt to changing media trends.
  
• Strong demand for live news and sports, digital expansion, pricing power, and operational discipline position Fox for resilient growth despite industry challenges and media shifts.

Catalysts

Operates as a news, sports, and entertainment company in the United States (U.S.).

• The widespread shift away from traditional linear television toward streaming services, especially among younger audiences, poses a major risk to Fox's core broadcast and cable businesses, leading to persistent declines in advertising revenue and a shrinking addressable market; this will likely have a negative impact on top-line growth and future earnings.
  
• Generational changes in media consumption-where younger viewers increasingly prefer non-traditional news and sports content-threaten the long-term sustainability of Fox's ratings strength, which underpins both advertising rates and affiliate fee negotiations; this could drive long-term revenue and net margin contraction as the audience base erodes.
  
• Higher content acquisition costs, primarily from escalating sports rights fees (e.g., NFL, FIFA), are expected to pressure profitability; if rights inflation outpaces revenue growth from advertising and affiliate fees, compression in net margins and EPS is likely over the coming years.
  
• The company's heavy exposure to news and opinion programming may elevate regulatory risk and make it more susceptible to advertiser boycotts in an environment of heightened scrutiny over misinformation and political polarization, driving volatility in advertising yields and potentially weakening revenue stability.
  
• Digital transformation efforts, while showing growth at Tubi, are relatively modest compared to major pure-play streaming competitors; if Fox fails to scale its digital business as quickly as needed to offset declines in its linear business, long-term top-line growth and overall earnings will stagnate or decline.

Fox Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Fox's revenue will decrease by 0.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 13.9% today to 11.4% in 3 years time.
• Analysts expect earnings to reach $1.9 billion (and earnings per share of $4.48) by about September 2028, down from $2.3 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.5x on those 2028 earnings, up from 11.5x today. This future PE is lower than the current PE for the US Media industry at 20.3x.
• Analysts expect the number of shares outstanding to decline by 2.45% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.22%, as per the Simply Wall St company report.

Fox Future Earnings Per Share Growth

Risks

• Robust secular trends toward live news and sports consumption, evidenced by Fox's record-breaking Super Bowl and continued cable news dominance, indicate ongoing strong demand for Fox's core content, supporting resilient advertising revenue and stable affiliate fees.
  
• Accelerating digital growth initiatives (Tubi's 100M+ MAUs and >30% revenue growth, FOX One launch, and LatAm streaming investments) diversify Fox's audience base, capture younger, cordless viewers, and provide new high-growth revenue streams, increasing the long-term revenue potential and net margins as digital scale improves.
  
• Fox's significant pricing power and audience share in political and sports programming-demonstrated by record ad sales in the 2024 election cycle and upfront negotiations with double-digit volume and strong pricing growth-support a strong revenue outlook, even as linear TV faces broad industry headwinds.
  
• Strategic operational discipline, continued share repurchases ($5B program increase), and a strong balance sheet (net cash/debt position and substantial free cash flow) demonstrate management's capacity to weather cyclical downturns and to invest in organic and inorganic growth, thereby sustaining earnings per share and shareholder returns.
  
• Fox's unique position as both a broadcast and digital innovator (FOX One's DTC bundle, successful Tubi AVOD platform, and planned integration of local and national content) enables the company to adapt to secular shifts in media consumption, potentially offsetting the impact of cord-cutting and maintaining long-term revenue and operating margins.

Valuation

• The analysts have a consensus price target of $60.694 for Fox based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $72.0, and the most bearish reporting a price target of just $48.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $16.4 billion, earnings will come to $1.9 billion, and it would be trading on a PE ratio of 16.5x, assuming you use a discount rate of 7.2%.
• Given the current share price of $58.64, the analyst price target of $60.69 is 3.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.