How Would a Trump News Network Impact FOX Stock?
Fox reported robust revenue and earnings for the recent earnings report, but the stock is taking a nosedive. Why? It could be because investors are anticipating that Donald Trump might launch his own news network in the wake of an election loss, according to Michael Nathanson, Senior Analyst at MoffettNathanson.
“While cord-cutting and advertising trends were better, there appears to be something below the surface that is torpedoing the stock. That something might be the potential launch of a new Trump News Network.”
The importance of Fox News to Fox Corp.: Fox News is the heart and soul of the company and is likely to continue as the key source of business performance. Revenue for Fox News is broken up into two buckets:
Affiliate fees: This is the money paid to content owners by cable or satellite operators. Fox News accounted for about 39% of total company affiliate fees during fiscal year 2020, according to MoffettNathanson. This is the key performance indicator because it represented over 80% of total company profits during that period.
Advertising revenue: Fox News’ revenue brought in from advertising accounted for about 25% of the total revenue at Fox, according to MoffettNathanson.
Market appeal: Fox News was the leading cable news network by viewership in 2019 with a 46% share. MSNBC and CNN followed with a 32% and 21% share, respectively, according to Nielsen data and MoffettNathanson analysis. Over time, MoffettNathanson predicts a Trump News Network “could lop off around 20% of the Fox News audience and reach 10% share of the entire news market.”
The potential threat to Fox News: Due to locked in affiliate fees, MoffettNathanson believes Fox News would be relatively protected against a newly launched Trump News Network for the next few years. That being said, the firm would cut its fiscal year 2024 advertising forecast by 22%. While this would be a drag on the business, MoffettNathanson says Fox is currently trading at a discount relative to peers.
Big picture: At the moment, a Trump News Network is just speculation. While it could have an impact on Fox News’ audience size, there is reason to be optimistic for shares of Fox. In a recent note reviewing quarterly results, Guggenheim analyst Michael Morris highlights domestic news, NFL exposure, and “industry-leading subscription growth rate.” Fox management highlighted significant growth in its streaming platform Tubi (33 million users), as well as its sports betting app FoxBet (2.9 million users.)
