Fox Corporation (FOXA) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call shows a positive outlook with strong advertising revenue growth, a successful FOX One launch, and Tubi's profitability. The $5 billion share repurchase plan further boosts investor confidence. Despite a decline in net income due to non-core items, adjusted metrics show growth. The Q&A highlights positive subscriber uptake for FOX One and strong pricing for FOX News, with strategic investments planned for Tubi. The overall sentiment is positive, though tempered by free cash flow concerns and lack of specific guidance for FOX One subscribers.
Key Financial Performance
Revenue Growth 5% year-over-year increase, driven by strong advertising and distribution revenue growth.
EBITDA Growth 2% year-over-year increase, attributed to robust advertising revenues and controlled expenses.
Advertising Revenue 6% year-over-year increase, despite the absence of last year's political revenue, supported by strong trends in news, sports, entertainment, and Tubi.
Distribution Revenue 3% year-over-year increase, with subscriber declines remaining below 7% for the third consecutive quarter.
Tubi Revenue Growth 27% year-over-year increase, driven by an 18% increase in total view time and reaching profitability this quarter.
Cable Networks Revenue 4% year-over-year increase, with a 7% increase in cable advertising revenues driven by robust pricing at FOX News.
Television Segment Revenue 5% year-over-year increase, with a 6% increase in advertising revenues driven by Tubi and strong sports pricing and engagement.
Net Income Attributable to Stockholders $599 million, down from $827 million in the prior year, due to non-core items. Adjusted net income was $686 million, a 4% year-over-year increase.
Adjusted EPS $1.51, a 4% year-over-year increase.
Free Cash Flow Negative $234 million, consistent with the seasonality of working capital cycle, including payments for sports rights and advertising-related receivables.
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Operating Highlights
FOX One launch: FOX One was launched this quarter and has received an enthusiastic response. Subscriber trends have exceeded expectations through direct acquisition and partnerships.
Tubi profitability: Tubi achieved profitability this past quarter, driven by a 27% revenue growth and an 18% increase in total view time.
Advertising revenue growth: Advertising revenue grew 6% during the quarter, supported by strong trends in news, sports, entertainment, and Tubi.
Sports engagement: FOX Sports saw increased engagement, with NFL viewership up 12% and college football viewership up 22% compared to last season.
Revenue growth: Total company revenue grew 5%, with advertising revenues up 6% and distribution revenues up 3%.
Cost management: Total company expenses increased by 6%, driven by investments in digital growth initiatives and higher entertainment programming costs, partially offset by lower sports programming costs.
Share repurchase program: A $1.5 billion accelerated share repurchase transaction was announced, reflecting confidence in the business outlook and commitment to shareholder value.
Digital initiatives: Tubi's profitability is expected to lead to a partial moderation in net investment across digital initiatives this year.
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Risk or Challenges
Subscriber Declines: Subscriber declines remain below 7% for the third consecutive quarter, but this trend could still pose a risk to distribution revenue growth if it worsens.
Advertising Revenue Dependence: While advertising revenue grew 6%, it is heavily reliant on market conditions and could be impacted by economic downturns or shifts in consumer behavior.
Content Costs: Higher entertainment programming costs and investments in digital-led growth initiatives increased total company expenses by 6%, which could pressure margins if revenue growth slows.
Sports Programming Costs: Although lower sports programming costs partially offset other expenses, the reliance on high-cost sports rights could pose financial risks if viewership or advertising revenue declines.
Political Advertising Revenue: The absence of last year's political advertising revenue impacted growth, highlighting the company's vulnerability to cyclical revenue streams.
Free Cash Flow: Free cash flow was negative $234 million in the quarter due to seasonality in working capital, which could strain liquidity if not managed effectively.
Subscriber Erosion Trends: While subscriber erosion trends are stable to improving, any reversal in this trend could negatively impact distribution revenue.
Economic Sensitivity: The company's performance is tied to economic conditions, particularly in advertising markets, making it vulnerable to economic downturns.
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Guidance & Outlook
Advertising Market: Momentum in Q1 is continuing into Q2, led by a very healthy advertising market stemming from both the upfront and a strong scatter market. The company is enjoying the most robust advertising market seen in some time.
FOX One: Subscriber trends have exceeded expectations with subscribers coming through direct acquisition and partnerships. FOX One bundled partners, including ESPN and Verizon, were launched earlier this month, building on momentum achieved with the Amazon Prime channels partnership.
Tubi: Achieved 27% revenue growth in Q1, driven by an 18% increase in total view time. Tubi reached profitability in Q1, earlier than expected, which will likely lead to a partial moderation in the overall net investment expected to deploy across digital initiatives this year.
Sports Engagement: Interest and engagement in FOX's portfolio of live sports is increasing. NFL on FOX is off to a record start, averaging almost 22 million viewers in September, a 12% increase over last season. College football viewership is also up 22% over last season.
Fiscal 2026 Outlook: Coming off a record fiscal 2025, fiscal 2026 is expected to highlight the uniqueness of the company's strategy, the quality of its assets, and its ability to deliver financially. The company announced a $1.5 billion accelerated share repurchase transaction, demonstrating confidence in its financial position and outlook.
Distribution Revenue: With stable to improving subscriber erosion trends, continued total company distribution revenue growth is expected for the full year, driven by the Cable segment.
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Shareholder Return Plan
Share Buyback Program: The company announced a $1.5 billion accelerated share repurchase transaction. This includes $700 million of Class A common stock and $800 million of Class B common stock. The transaction is expected to commence immediately and be completed during the second half of fiscal 2026. Additionally, the company has already repurchased $300 million worth of shares earlier in the fiscal year.
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Key Q&A
Q:Can you provide more details on FOX One's subscriber uptake, engagement, and content preferences? Also, did the ESPN bundle launch accelerate growth?
A:FOX One's uptake has exceeded expectations, with strong engagement driven by sports on weekends and news during the week. Subscriber acquisitions are effective, particularly through football and post-season baseball. The ESPN bundle has contributed positively to growth.
Q:What is the long-term margin trajectory for Tubi, given its recent profitability?
A:Tubi is expected to achieve margins in the 20%-25% range in the medium term, with some seasonality affecting profitability.
Q:What is driving the stronger pricing on FOX News, and where do you see its potential?
A:FOX News pricing strength is driven by its market share, being the #1 channel in television year-to-date, and its CPMs being half of broadcast networks. About 350 new national clients have joined this year, with many increasing their spending.
Q:Can you provide parameters for the moderation in investment levels for Tubi?
A:The moderation in investment levels is due to Tubi hitting profitability earlier than expected. Investments will continue modestly and strategically to build the business.
Q:What are the key drivers of stable to improving subscriber erosion trends, and how important is FOX One to distribution growth?
A:The key drivers include the rise of skinny bundles and digital distributors. FOX One is additive to subscriber numbers but is not expected to have a material short-term impact on distribution growth.
Q:Why was the ASR initiated now, and why the composition between Class A and B shares?
A:The ASR was initiated for efficiency, with 80% of shares settled immediately. Class B shares were chosen due to their 10%-11% discount compared to Class A shares, making them a more efficient buy.
Q:How will the balance sheet flexibility be utilized, and will there be changes in the asset mix or participation in M&A?
A:The balance sheet will be utilized for M&A, focusing on areas with tailwinds rather than headwinds. There are no current deals, but M&A will be a disciplined part of growth.
Q:Can you provide insights into advertising performance across FOX News, sports, entertainment, and Tubi?
A:Advertising is strong across all verticals, with notable growth in pharma, financial services, and tech. Sports advertising, including NFL and the World Series, is performing well. Tubi continues to see strong revenue growth despite a decline in political advertising.
Q:What are the investment levels for fiscal '26, and any updates on FOX One's customer acquisition strategies?
A:The fiscal '26 investment level remains at a conservative estimate of $350 million. FOX One's customer acquisition is driven by partnerships with ESPN, Verizon, and Amazon, with sports content being a major attraction.
Q:Review of Unclear Management Responses
A:Management avoided providing specific subscriber numbers for FOX One and did not update the fiscal '26 investment level beyond the previously stated conservative estimate of $350 million.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Amazon
Big
Cable
Class stock
Distribution
FOX News
FOX start
Television segment
absence
advertising market
advertising revenue
bundle
cash flow
confidence outlook
consumer
content revenue
distribution
end
engagement
entertainment
game
increase
network
news
position
pricing
rating
repurchase transaction
season
share
sport programming
start viewer
strength
subscriber
trend
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