5 Things 21st Century Fox's Management Wants You to Know

A Fool digs through the latest conference call notes to reveal what matters to Rupert Murdoch and his team.

Aug 18, 2014 at 5:06PM

Xmen Days Of Future Past

X-Men: Days of Future Past has been a winner, but there are bigger catalysts for Fox stock. Credit: 21st Century Fox.

With a failed bid for Time Warner (NYSE:TWX) now officially behind it, 21st Century Fox (NASDAQ:FOXA) is moving forward with ambitious plans for fiscal 2015. What's planned, and how might investors following Fox think about the business? Here's what management had to say in the most recent earnings conference call.

Fox is "resolute" about walking away from its bid for Time Warner

At $80 billion and $85 a share, Fox was offering a 20% premium to what Warner was trading for at the time. The combination would have created the world's largest integrated media company with the ability to take on not only Walt Disney (NYSE:DIS) but also Comcast.

Having been refused by Time Warner's management and board to engage with us, to explore this compelling offer, coupled with the reaction in our share price that undervalued our stock, resulted in our conclusion that this transaction was no longer attractive to Fox shareholders. As you know, yesterday, we walked away. This is our resolute decision, which is why we formally withdrew our acquisition offer.

Fox stock is up about 15% since CEO Rupert Murdoch declared the Warner deal dead.

A similar bid for a different studio probably isn't in the works

When Fox announced its bid for Warner, pundits presumed it would be the first of many attempts to add to Fox's media portfolio. Fox President and Chief Operating Officer Chase Carey disabused analysts of that notion during the call.

We have no plans to pursue any other third-party content company as an alternative to Time Warner. We have created shareholder value at Fox by being an industry leader in building businesses, realigning franchises and establishing leadership positions in brands and content around the world.

Markets other than the U.S. and Canada accounted for 44% of revenue in fiscal 2014.

The stock is cheap

Rather than targeting another media company, Murdoch told analysts that he'd rather bet on Fox's own stock.

We are committed to delivering value for our shareholders, not only through earnings growth, but also through robust capital returns. In that regard, yesterday, our board authorized a new $6 billion share buyback program. It is effective immediately and will be completed within 12 months, just as we have completed the $4 billion share buyback program authorized last August. We believe buying our own stock, when it is underpriced, represents a unique opportunity to maximize shareholder value over the long term. And at these levels, we believe our stock is severely undervalued.

The move comes at an interesting time. Fox stock has underperformed the market by about four percentage points year-to-date and, at 21.5 times earnings, trades for a similar premium to Disney stock. Analysts are expecting earnings to grow by 20% annually over the next three to five years. (Source: S&P Capital IQ.)

Digital isn't killing the TV advertising market; the economy is

Television is a big part of Fox's business. As a result, ad sales at the annual "upfronts" help the company forecast profits. Generally, the television industry's annual upfront meetings take place the third week of May, at the end of the current broadcast TV season and amid the final "sweeps" for calculating full-year ratings. According to Carey, Madison Avenue's big buyers weren't in a spending mood this time around. What held them back? The economy, Carey said.

Business at the recently completed upfronts would best be described as cautious. We hit our targets in terms of pricing, but overall, volume was down. Many have asked to what extent this result was driven by advertising moving to digital platforms. Now clearly, digital ad spend is growing, particularly in mobile platforms. However, television effectiveness is standing up pretty well to the competition. The primary factor leading to lower upfront volume was the lackluster economy ...

Maybe so, but there's also evidence that online video is surprisingly effective when it comes to engaging viewers. Most of us spend just six hours per month watching online, versus 146 hours of television. According to AdWeek, that still results in $3.5 billion in annual revenue.

News and sports are still the keys to the company

20th Century Fox might be the biggest name in Fox's lineup, but it's the everyday cable business that drives profits, CFO John Nallen said during the call.

The overall growth in fiscal '15 will be driven by our Cable segment, which, excluding our [direct broadcast satellite] businesses, represented 70% of our EBITDA [earnings before interest, taxes, depreciation, and amortization] this past year. This segment is forecasted to post high single to low double-digit EBITDA growth in fiscal 2015, led by contributions at the [regional sports networks], Fox News, and [Fox International Channels].

And if Fox misses the target? Blame sports. Additional investments at existing and acquired networks will boost expenses in the coming year.

As we indicated a year ago during our Investor Day, our growth in fiscal 2015 will be affected by the continuation of several strategic initiatives, most notably, the continued planned investments into our new sports and entertainment networks here in the U.S. and internationally, particularly in India.

3 other stocks poised to soar as cable cowers
Fox isn't the only company finding its way in a shifting market. There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple.

 

Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Apple, Google (A and C class), Netflix, Time Warner and Walt Disney at the time of publication. Check out Tim's Web home and portfolio holdings, or connect with him on Google+Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool recommends and owns shares of Apple, Google (A and C shares), Netflix, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers