Fox Corp-B

Fox's fiscal fourth-quarter revenue was up a stunning 28% year over year on an even more stunning 78% rise in advertising revenue, mostly due to World Cup viewership. Even apart from this nonrecurring catalyst (though it will be present in the fiscal first quarter), Fox's business is very healthy.

Why it matters: Fox remains the outlier in a cratering linear TV industry. Now, with Tubi still growing rapidly and Fox's agreement to buy Roku, the firm appears prepared for the digital world when its run of linear luck reverses. We estimate Tubi generated $1.5 billion in fiscal 2026 sales, or 9% of the firm's total, after it grew another 35% in the quarter. Management said Tubi has been profitable for four straight quarters. Fox has also been encouraged by Fox One, the direct-to-consumer streaming app that houses Fox's linear content. Management gave no financial details about Fox One but said it has not cannibalized linear viewers, and churn has been low.

The bottom line: We are likely to modestly raise our $65 fair value estimate following the incredible results and an expectation that the fiscal first quarter will exhibit similar strength, but we will wait for the firm to issue its annual report to get a full picture. Our long-term outlook is unchanged.

Key stats: Adjusted EBITDA rose 27% in the quarter and 8% for the full year, leaving the margin little changed for either period. Elevated costs for the sports rights that drove ad sales kept the firm from realizing operating leverage, and Fox is investing in its digital business. However, overall digital investment dropped from about $300 million in fiscal 2025 to under $200 million in 2026 and should decline again in 2027.

Between the lines: Strong viewership also gives Fox negotiating leverage with its affiliates and pay TV distributors, enabling it to increase distribution revenue even as pay TV subscribers continue to decline. Distribution revenue, with some contribution from Fox One, rose 6% in 2026.

Our fair value estimate for Fox is $68, implying a price/earnings ratio of 12 and an enterprise value/adjusted EBITDA multiple of 9, based on our fiscal 2027 forecast. Our fair value estimate does not deviate with or without the Roku acquisition. Fox agreed to pay a high, but not unreasonable, price. In our view, the addition of Roku makes the difference in whether the firm can continue growing over the long term. With Roku, the EV/adjusted multiple would be around 12.0.

Over the long term, we expect Fox’s stand-alone business to struggle to grow. We think Fox will continue to control premium programming, giving it pricing power with pay TV providers, affiliated local Fox stations, and advertisers, but that dynamic will be mitigated by a continually shrinking pay TV subscriber base in the US. We project domestic pay TV subscribers to decline by 3 million-4 million annually, which offsets the low to mid-single-digit annual increases we expect Fox to extract from pay TV providers and local affiliates. We expect the Fox One streaming service to mitigate the decline, but we don’t think it can replicate the number of subscribers Fox gets from traditional pay TV. Including both the broadcast and cable networks, we project affiliate revenue to be only slightly higher in 10 years than it is today, though we expect growth in the medium term before declines set in.

Fewer pay TV subscribers will also put long-term pressure on advertising revenue, but Fox should be able to make up some of this headwind through the growth of Fox One and Tubi, its free streaming platform, and we expect advertising revenue to remain highly cyclical. We project advertising revenue to be up substantially in fiscal 2027 due to a boost from the World Cup and midterm congressional elections in the US. Over the next decade, we project advertising growth at a 3% annual rate.

We project Fox’s adjusted EBITDA margin to hover around 20% throughout most of our forecast, slightly vacillating from year to year depending on major events, like the Super Bowl, that Fox may broadcast. We don’t see an opportunity for major cost savings while total revenue isn’t generally rising. Most importantly, we expect Fox’s annual cash content costs will, on average, rise slightly throughout our forecast, though any year’s spending will depend on that year’s sports rights. With sports and news accounting for most of Fox’s content spending, we see much less opportunity to reduce discretionary spending without giving up some of its rights. Fox’s MLB rights are up for renewal in fiscal 2028, and the NFL can renegotiate its contract in fiscal 2030. We project cash content spending will be in the $7.0 billion-$9.0 billion annually over the next decade.

We assign Fox a Morningstar Economic Moat Rating of none, primarily reflecting the industry shift that has befallen all firms that rely heavily on the pay-TV business model rather than company-specific factors. We have not yet seen an overriding shift in Fox’s competitive positioning, but we have more doubt that any firm relying primarily on linear television is likely to generate excess returns on invested capital over the next 10 years, as fewer consumers pay for linear television. The firm’s proposed acquisition of Roku alleviates some of this concern, and we will reevaluate Fox’s moat if the deal gets completed.

Fox’s strategy to focus on news and sports has led it to outperform traditional media peers over the past several years and continue generating excess returns on invested capital despite the industry headwind it faces. However, even if Fox continues to deliver high-value live content and its networks are must-haves for pay-TV distributors, its content alone is insufficient to save the pay-TV bundle upon which it relies. Given the firm's heavy reliance on licensed content, we see little that would give it an edge in continuing to generate excess returns outside the pay-TV bundle. We think the addition of the Fox One streaming offering is a smart move, but we don’t think it can fully offset the decline of the pay-TV bundle, which has been lucrative for Fox.

Fox operates only in the US, where we estimate that the number of pay-TV subscribers has fallen by over 40% over the past decade and a half. We estimate that only about half of US households now pay for TV service, and the number continues to decline. Through fiscal 2025 (before the launch of Fox One), Fox’s only notable presence outside of linear television was through various websites and the Tubi streaming service, which does not require a subscription, is supported solely by advertising revenue, and mostly consists of programming owned by third parties. Based on occasional management disclosures, we estimate Tubi makes up less than 10% of Fox’s total sales. Tubi viewers can see programming from the Fox broadcast network—though mostly not live—and a combination of linear and on-demand programming. However, most of this programming is dated or lower-tier content.

As one of only four major broadcast networks in the US that can reach nearly every household with free access over the air, the Fox network is a unique asset that has value, in our view. We believe the reach of broadcast networks gives them a modest edge in attracting premier content. Fox has long maintained rights to NFL games on Sunday afternoons and occasional Super Bowls, the World Series and other Major League Baseball games, and World Cup soccer matches, among other sports programming. It now also has rights to Big Ten football games. While we believe broadcast networks’ reach gives them advantages in attracting content producers, those advantages are not overriding. A content provider might prefer Fox and its peers, but broadcast networks don’t have such substantial advantages that they can avoid bidding aggressively, now also against streaming firms that have far greater financial resources than Fox has.

Fox News remains dominant in cable news and has a brand that consistently attracts a large audience. This network alone has intangible brand assets and some network effect qualities. Politicians and top network personalities want to appear on Fox News to reach a big audience, thereby making it more difficult for other networks promoting a Republican point of view to draw viewers and secure wide distribution with pay-TV providers.

Fox News’ advantage over television competitors remains strong, but we believe it could become less impactful over time. In addition to the decline in pay-TV subscribers, Fox News may face a demographic problem. Its audience skews older, and there are no guarantees that subsequent generations will pick up the slack after coming of age with other means of consuming news.

Above all else, however, we don’t think Fox can fight against the broader trend of fewer people paying for and watching linear television. No matter how valuable Fox’s networks are, consumers primarily pay for them by subscribing to a broader TV package or watching Fox programs (and drawing advertisers).

Fox holds very attractive sports rights, and Fox News is the long-running leader in cable news viewership, giving Fox pricing power that helps it offset the decline in pay-TV subscribers and buck the industry trend of shrinking affiliate revenue.

Sports and news continue to attract live viewership, which puts Fox in a much stronger position than peers to grow advertising revenue.

Without a subscription streaming service requiring heavy investment, profits from the cash cow pay TV business will continue dropping to the bottom line.

Fox is more dependent on linear television than any peer. A perpetual contraction of pay-TV subscribers will eventually hurt Fox more than most and will require a revamping of its business model.

Fox owns little of its own programming. This leaves Fox at the mercy of content owners and the competitive landscape, especially when it needs to renew sports rights, as with the NFL as soon as 2029.

Fox News’ success is built on a demographic of older viewers. Younger generations haven’t relied on television for political news, which could diminish Fox News’ popularity longer-term.