Fox (NASDAQ: FOX) is the media company formed from the parts that Walt Disney did not take when it acquired 21st Century Fox in 2019. And while Fox no longer controls brands such as The Simpsons and Avatar, it is still a notable player in other areas of the home entertainment space.
Fox's stock is currently trading around $28 a share -- down from approximately $33 in February of this year. But with some interesting things happening in cable and streaming, there are some key reasons investors may want to take a look at Fox's stock. Let's break it down.
Cable TV is still popular
Subscription video on demand (SVOD) is increasing in popularity every year, but cable and satellite services -- while notably diminished -- are still watched by some 56% of Americans. Part of pay TV's resiliency is its entrenched position as an outlet for live news and sports coverage.
Fox News is the most popular cable news network in the U.S., drawing in more than 2 million prime-time viewers each day -- roughly 1 million more than MSNBC. And while Fox Sports' channels lag Walt Disney's ESPN in overall viewership, Fox has still managed to capitalize on some high-profile events, including the 2023 Super Bowl, which attracted almost 120 million viewers for Rihanna's halftime appearance.
Affiliate fee increases
While viewership numbers matter to advertisers, most of Fox's income comes from charges known as affiliate fees, which represents the money the company charges cable operators for access to its programming -- regardless of whether viewers tune in.
Fox doesn't disclose how much it charges cable operators, but according to industry experts, it's in the ballpark of $2 per subscriber. In fiscal 2022, Fox generated $1.5 billion from ad sales, while affiliate fees brought in $4 billion for the company. Fox has previously noted that 70% of its affiliate fees are up for renewal through 2023 and 2024, and there are reports the company is seeking a new rate of $3 per subscriber, which, if it is successful, could lead to a significant rise in revenue.
The rise of FAST
One area where ad revenue is the primary source of income is free ad-supported TV (FAST) -- and Fox's Tubi is among the biggest operators in the space. As reported by Statista, Tubi has almost 65 million monthly active users, up 40 million over a three-year period. And while that pales against the hundreds of millions of subscribers that SVOD companies such as Netflix and Walt Disney enjoy, the FAST space as a whole is growing at a notable clip.
According to streaming media service Plex, FAST programming accounted for 6% of all content consumed on its platform in 2020. By the end of 2022, that figure was up to 30%. And when it comes to ad revenues, the future is also looking promising for FAST operators; research firm Omdia predicts the industry will generate more than $6 billion in 2023, climbing to almost $12 billion by 2027.
The long-term view
Investors looking at Fox's stock may be heartened to see the potential for Tubi -- particularly as most U.S. households are expected to move away from traditional pay-TV this year. Of course, the decline of traditional cable could weaken Fox's hand when it comes to affiliate fee negotiations, but in an effort to unlock future growth, Fox says it is investing more in its online properties -- which include Fox News Digital and Fox Sports Digital.
Those interested in Fox's stock would do well to pay attention to the company's next quarterly results. If Fox can show continued growth for Tubi while also maintaining strong numbers for its affiliate fees, then there's a chance its stock may tick north again.
10 stocks we like better than Fox
When our analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
They just revealed what they believe are the ten best stocks for investors to buy right now... and Fox wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of May 22, 2023
Tom Wilton has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix and Walt Disney. The Motley Fool recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.
