FOX FY2027 Q1 EARNINGS CALL - FOX CORP

Financial Performance:

• Total revenue grew 22% year-over-year to a record $4.6 billion.
• EBITDA surged 54% to a record $1.64 billion (adjusted EBITDA).
• Net income was $943 million ($2.20/share), compared to $599 million ($1.32/share) in the prior year.
• Adjusted net income was $1.009 billion, with adjusted EPS of $2.054, up 68% year-over-year.
• Advertising revenue jumped 47%, driven by the FIFA World Cup and political ads.
• Distribution revenue rose 9%, with cable distribution up 10% due to rate increases and Fox One subscriber additions.
• Free cash flow was positive $503 million, heavily influenced by working capital timing regarding World Cup rights payments.
• Balance sheet strength: $4.5 billion in cash and $6.6 billion in debt.
• Capital allocation: Share buybacks temporarily paused but expected to resume in the current quarter; full-year repurchases anticipated within historical ranges.

Guidance and Future Outlook:

• Management expressed high confidence in Fiscal 2027, citing momentum from the first quarter as a leading indicator for the year.
• Tubi's revenue growth is expected to continue into the second quarter, supported by a robust midterms political advertising cycle.
• The Roku acquisition is expected to close as soon as HSR clearance is obtained; no specific date provided but process is progressing.
• Long-term outlook for Tubi margins targets the 20% range as the platform matures.
• Upcoming content highlights include NFL Week 15 triple-header, Thanksgiving college football (Michigan vs. Ohio State), NFL Thanksgiving game, and the World Series.

Business Segments and Product Lines:

• Cable Segment: Revenue up 8% (advertising +8%, distribution +10%, content +1%). High sports programming costs impacted margins.
• Television Segment: Revenue up 32% (advertising +60%, distribution +4%, content -4%). EBITDA increased 134% driven by World Cup and political ads.
• Fox One: Launched over a year ago; achieved net positive subscriber growth for the trailing 12 months, offsetting traditional pay-TV declines. 97% of new Fox One subscribers are cord-cutters.
• Tubi: Delivered mid-30% revenue growth (35% YoY) with a 23% increase in total view time; growing EBITDA contribution.
• Political Advertising: Recorded a record $350 million+ across the portfolio for the midterm cycle ($250M local, $50M Tubi-targeted, $50M+ national).

Market and Competitive Landscape:

• Fox News maintained its position as the most-watched cable news network despite tougher comps to the previous year's high-profile news cycle.
• Fox News Digital remains the number one digital news site in the US.
• Sports engagement remains robust, with the MLB playoffs averaging 12 million viewers per game and the Fox "America's Game of the Week" averaging nearly 25 million viewers for the NFL.
• Tubi is uniquely positioned to reach young, diverse, and cordless audiences that are harder to target on other platforms.
• Industry trend shows improving subscriber decline rates at third-party distributors (below 6% net).

Risks and Challenges:

• Fox One Seasonality: Management cautioned that Fox One subscriber growth may be seasonal due to sports calendar fluctuations, potentially making it difficult to fully supplant traditional subscriber losses year-round.
• Viewer Fatigue: Acknowledged viewer fatigue around Fox News due to the intensity of the 2024 election cycle, comparable to 2006 midterms; viewers are reducing overall TV consumption rather than switching channels.
• Digital Ad Competition: The web traffic environment remains hyper-competitive for digital news advertising.
• Regulatory Delays: The Roku acquisition is pending DOJ HSR clearance, creating uncertainty on the exact closing timeline.
• Cost Pressures: High costs for sports programming rights (World Cup) and news production continue to impact expenses.

Management Commentary and Tone:

• Tone was highly confident and positive, describing the quarter as an "outstanding start" to Fiscal 2027.
• Management emphasized the success of their "focus strategy" and the strength of their content library.
• Lachlan Murdoch acknowledged a specific prediction error regarding Tubi's growth sustainability, noting he previously doubted the mid-teens growth he now sees in the 30% range.
• CEO and CFO stressed disciplined capital allocation and balance sheet strength despite the Roku transaction costs.

Analyst Questions and Answers:

• Fox One Long-Term Growth: Executives confirmed 97% of Fox One subs are incremental (cord-cutters) but warned that seasonal sports cycles may limit its ability to permanently offset all traditional cable declines.
• CPM Trends & Tubi: Advertising CPMs are healthy; Fox aims to bridge the gap between news and broadcast CPMs. Tubi's growth is attributed to its unique cordless demographic and is continuing into the next quarter.
• Fox News Ratings: Lower ratings were attributed to viewer fatigue rather than churn to competitors (MSNBC/CNN); Fox maintains a lead over peers in share.
• Fox One Bundling: Bundling with other platforms is in its infancy; more bundles are expected to roll out as the service develops.
• Roku Buyback Timing: The resumption of share buybacks is a standalone decision and not contingent on the immediate closing of the Roku transaction.
• World Cup Rights: Fox will bid on 2030/2034 rights in a disciplined manner, following the success of the 2026 broadcast.

Other Key Points:

• The World Cup was the most-watched soccer telecast in U.S. history.
• The NFL Thanksgiving game will stream live on Tubi, further integrating the AVOD platform with premium live events.
• Fox News coverage of the midterm elections saw more Americans rely on it than any other network for key issues.
• The company plans to continue its disciplined approach to M&A and content investment while delivering shareholder value.