What happened

Shares of Fox Corporation (NASDAQ:FOX)(NASDAQ:FOXA) headed higher on Thursday after the company showed its business is holding up well during the COVID-19 pandemic. Both its Class A shares and Class B shares were 9% higher during early trading, before fading later in the session.

What might be most surprising for investors is Fox's ad revenue, which in the third quarter of fiscal 2020 grew a whopping 44% year over year.

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Image source: Getty Images.

So what

The coronavirus has affected consumer spending, which makes companies cut their advertising budgets. Consider that competitor ViacomCBS's advertising revenue only increased 2% in its most recent quarter, even after accounting for the impact from lost sporting events. By contrast, Fox saw incredible growth.

There are two big reasons for Fox's strong quarter. First, Fox News was already incredibly popular among viewers. But in Q3, its viewership among adults age 25 to 54 nearly doubled. That's a desirable target demographic, and advertisers spent their money on Fox, where the eyeballs were. 

Second, 40% of Fox's ad revenue comes from live sports. Companies like ViacomCBS were hurt because sporting events were canceled. But the bulk of Fox's sports revenue comes from the NFL and college football, two sports that haven't started yet. Had the COVID-19 outbreak occurred during the fall rather than the spring, this could have been a very different story.

All told, Fox Corporation's total quarterly revenue grew 25% year over year to $3.4 billion, while delivering adjusted EBITDA of $0.93 per share. The adjusted number accounts for one-time expenses related to its now-exited position in Roku.

Now what

Right now, college football and the NFL are planning for normal seasons. But if COVID-19 flares up again and cancels fall sports, that would be a blow to Fox Corporation's advertising revenue. It's worth keeping tabs on.

As it is, next quarter will have more challenges for Fox. In particular, its local news partners are feeling the effects of reduced advertising spending. At the current pace, management expects local-news ad revenue to be down 50% in the upcoming fourth quarter. Fortunately for Fox, it is a diversified media company, helping it weather the storm. But the decline in ad revenue will still be a real near-term headwind.