By David Shakirov
Fox Corporation (NYSE:FOXA)
| Market Cap | EV | P/E | Net Income Mgn | Net Debt/EBITDA | Proj. Upside (2024) |
| $17.6B | $21.5B | 11x | 13% | 1.1x | +119% |
Fox Corp is a media conglomerate operating in two main segments, TV and Cable.. The TV segment has local stations covering <40% of the US population, the Fox channel, and digital operations like Tubi, Fox.com, Fox Nation SVOD, Fox Soul AVOD, etc. The Cable segment has Fox News, Fox Sports, Fox Business, FoxNews.com, etc. Both the Cable and TV segments are monetized by “affiliate revenues” (i.e. subscription $ from providers) and “ad revenue”. The misc. segment includes a fin-tech called Credible, an animation studio Bento, and Fox Studios.
The company’s core assets — the Fox channel, Fox local news, Fox News, Fox Sports, and Fox Business — are high quality, durable crown jewels generating steady cash flows. Its other tech-focused assets like Tubi and Credible are grossly undervalued by the public markets. This memo will split Fox Corp’s business into five segments and value each by piece.
Fox’s channels are considered to be the most valuable asset of a cable or broadcast bundle, exemplified by the propensity of cable companies to eat up Fox’s affiliate fee hikes of ~10%/year. Fox’s digital strategy – across the online radio, web, social media, and Fox Nation – develops online engagement. Finally, Fox can capture the upside as users move from traditional TV to free ad-supported on-demand content, especially as advertisers pay to target Tubi’s young users, ~90% of whom cannot be reached via trad. cable. Interestingly, Fox has a stake in fintech Credible, sports betting through Flutter/FanDuel, livestreaming via Caffeine + a $1.5B tax shield
Broadcast Television
| Projected 2024 EBITDA | $884mm |
| EV/EBITDA Multiple | 6x |
| EV of Segment | $5.3B |
This segment includes the Fox channel, which is the most-watched broadcast station, with ratings 31% higher than the #2. Fox Corp also owns 29 local news channels (11 are duopolies) covering 40% of the US, where the local news industry has grown at 4% CAGR since 2015. Importantly, roughly 80% of its content across this segment is viewed “live” 90% of the time (e.g. news, sports, etc.), not O.D. However, this is the least compelling segment as it’s not a premium offering with margins <10%.
Tubi
| Projected 2024 Revenue | $351mm |
| EV/Revenue Multiple | 6x |
| EV of Segment | $2.1B |
Tubi is an extremely interesting opportunity for Fox. Tubi provides an on-demand platform of free-to-watch content supported by ads (aka “AVOD”). AVOD is very important in the streaming world as it provides a free on-demand streaming option for younger audiences, 81% of which want to accept ads for free content (especially as Netflix/Hulu keep hiking prices). This digital-streaming solution is highly prized by Wall St. since it represents the post-cable future. Comps trade at ~6x revenues and roughly $20-30 valuation/user. Given Fox already has a vast collection of content, it can “recycle” it for free on Tubi and generate valuable digital ad revenues (targeted digital ads are worth much more than OTT-broadcast TV ads). Tubi grew +100% last year and now has close to 40m registered users. Very importantly, 87% of Tubi’s users cannot be reached by cable advertising, so they are a highly valuable user base. Fox bought Tubi in early 2020 for $450m, after selling its stake in Roku for a $300m profit. Tubi’s revenues are expected to surpass Fox’s primetime broadcast-ad revenues (which I estimate to be close to $400m). I estimate Tubi’s valuation as of 01/21 to be ~$700m (so, 2x long-term revenue vs. 6x+ comp.). The long-run value and potential of the AVOD business is exciting, yet not baked in the market value of Fox.
Cable Television
| Projected 2024 EBITDA | $2.7B |
| EV/EBITDA Multiple | 12x |
| EV of Segment | $32.8B |
Fox News, Fox Business, and Fox Sports are premium offerings available through cable subscriptions + supplemental online content, podcasts, radio, digital, etc.. Controversy and political bias aside, Fox News is the highest rated cable TV channel and Fox Business has higher ratings comparable to CNBC. Both are watched by relatively affluent audiences (better ad dollars). FoxNews.com is a digital leader with 11x as many impression-minutes as ABC.com, 7x CBS.com, 6x NBC.com, and 2x NYtimes.com. Its supplemental subscription digital offering, “Fox Nation”, has a loyal base with a 80%+ convert from free trial to paying subscriber. Overall, this is a premium, high-quality, durable segment which operates at ~50% EBITDA margins and warrants at least a 12x multiple.
Credible
| Projected 2024 Revenue | $220m |
| EV/Revenue Multiple | 5x |
| EV of Segment (67% stake) | $737m |
Fox acquired 67% of Credible for $265m in 10/19. Credible is an online financial technology company offering loan comparison tools. Previously, Credible was publicly traded. The revenues doubled from 03/19 to 03/20, and now likely crossed $100m in annual run-rate revenue. Credible has some synergies with Fox Business, and was fast-growing before the Fox relationship. On its own, Credible is disruptive, and successful, but the specific synergies between the two businesses are unclear.
Other
Fox a few other interesting features:
- 3% ownership in Flutter and an option to acquire up to 18.5% of FanDuel
- Synergy between increasingly legalized sports betting market and Fox Sports
- Stake currently worth ~ $400m (but poised for growth as sports betting expands)
- Full ownership of Bento, which is a well-respected animation studio (behind Bob’s Burgers, Central Park, etc.)
- Full ownership of Fox Studio Lot
- Minority ownership of Caffeine, a social-media live-streaming start-up ($600m valuation)
- $1.5B tax shield post-C21 separation
Model and Valuation Summary
