{"id":567789,"date":"2023-03-28T18:07:10","date_gmt":"2023-03-28T15:07:10","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/why-fox-corp-analysts-are-cutting-their-ad-forecasts\/"},"modified":"2023-03-28T18:07:10","modified_gmt":"2023-03-28T15:07:10","slug":"why-fox-corp-analysts-are-cutting-their-ad-forecasts","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/why-fox-corp-analysts-are-cutting-their-ad-forecasts\/","title":{"rendered":"#Why Fox Corp. Analysts Are Cutting Their Ad Forecasts"},"content":{"rendered":"
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\n For the final quarter of 2022, Fox Corp. could celebrate a 4 percent advertising revenue gain. Amid economic clouds late in the year, executive chairman and CEO Lachlan Murdoch said in February that his team was \u201cmindful of current macroeconomic conditions,\u201d but touted that \u201cthe durability of our brands and Fox\u2019s ability to deliver audiences at scale position us well to navigate this uncertainty.\u201d\u00a0<\/p>\n

\n The broader industry sentiment at the time was that ad trends were stabilizing early in 2023. <\/p>\n

\n Now, however, whether they call it \u201ctrimming\u201d or \u201crevising,\u201d some Wall Street experts are cutting their advertising forecasts for Fox, with at least one also seeing possible downside for other sector giants. <\/p>\n

\n On March 27 alone, two observers lowered their Fox forecasts for the January-June period. Guggenheim analyst Michael Morris in the headline of a report said he was \u201cTrimming\u00a0Fox\u00a0News<\/a> Estimates on Persistent Advertising Softness,\u201d while maintaining his \u201cbuy\u201d rating and $40 stock price target on the company. And Steven Cahall, an analyst at Wells Fargo, unveiled \u201cnegative advertising revisions\u201d for Fox, while also sticking to his \u201coverweight\u201d rating and $44 target. <\/p>\n

\n Before that, Credit Suisse\u2019s Douglas Mitchelson had on Friday updated his cable networks ad forecast for the current fiscal third quarter from a drop of 4 percent to a decline of 9 percent. <\/p>\n

\n All three cited softer direct-response ad momentum, which had already affected Fox News in the final quarter of 2022. Direct-response ads traditionally fetch somewhat lower prices, but give networks more say on when they run. <\/p>\n

\n The weakness here was also a reason for Bank of America analyst Jessica\u00a0Reif Ehrlich to lower her total quarterly revenue\u00a0growth forecast for Fox from 18 percent to\u00a017 percent and switched from a 1 percent growth forecast for operating income before depreciation and amortization (OIBDA) to a 1 percent drop estimate \u201creflecting continued softness in\u00a0digital advertising\u00a0(particularly programmatic,\u00a0although Tubi trends remained healthy)\u00a0and\u00a0direct response advertising (in Fox News).\u201d<\/p>\n

\n But she went a step further than her peers, downgrading Fox\u2019s stock from \u201cbuy\u201d to \u201cneutral\u201d and slashing her price target by $8 to $34. \u201cWhile we do not project any significant near-term degradation in fundamentals, we struggle to find near-term\u00a0catalysts,\u201d Reif Ehrlich explained. \u201cPrior catalysts, such as the\u00a02023\u00a0Super Bowl, affiliate renewals, midterm election cycle and the World Cup, have either passed or are already contemplated in consensus forecasts.\u00a0Given Fox\u2019s asset mix, we believe\u00a0they have the greatest relative exposure to the secular headwinds in cord-cutting,\u00a0while it remains unclear what their\u00a0longer-term\u00a0strategic plans are if these trends persist or worsen.\u201d\u00a0<\/p>\n

\n Her Street colleagues, meanwhile, have focused mainly on updating their ad models for the company.<\/p>\n

\n Mitchelson estimated that Fox\u2019s direct response advertising revenue would be down 27 percent for the January-March period, following a 53 percent decrease in the final quarter of 2022. \u201cFox News was the most impacted by significantly lower direct response volume, down 62 percent year-over-year in January,\u201d the analyst wrote in his report. He did, however, keep his \u201cneutral\u201d rating and $35 stock price target on Fox.<\/p>\n

\n Monday\u2019s two latest reductions to Fox ad projections follow stock market and business confidence jitters caused by the recent challenges in the banking sector and came on the same day as media<\/a> investment company Magna lowered its forecast for U.S. advertising for 2023. After a 5.7 percent gain in 2022 to a record $315 billion, U.S. media owners\u2019 advertising revenue will rise 3.4 percent\u00a0this year, down from the previously forecast 3.7 percent, it said.\u00a0\u201cAd spend slowed down significantly through the second half, and fourth quarter ad sales were flat year-over-year,\u201d Magna explained. For 2023, it highlighted \u201cmixed economic signals\u201d and \u201cfinancial turbulence (that) is generating anxiety among consumers and businesses.\u201d<\/p>\n

\n The ad downgrade came after entertainment industry CEOs in recent months spoke of a challenging ad environment. Among others, Warner Bros. Discovery CEO David Zaslav has called the market \u201cvery weak,\u201d and Paramount CEO Bob Bakish has described it as \u201ccyclically tough.\u201d And Cahall warned in a report on Friday: \u201cThe fallout from the banking sector is expected to weigh on consumer\/advertiser psychology and push out any ad rebound.\u201d However, sports advertising has been booming. <\/p>\n

\n So why is Wall Street getting more cautious on Fox? Morris explained that he updated his\u00a0Fox\u00a0financial models \u201cto better reflect ongoing softness in direct-response advertising at the company\u2019s\u00a0Fox\u00a0News business,\u201d noting that management had indicated it during its February earnings call for the fourth quarter of calendar year 2022, which was the second quarter of Fox\u2019s fiscal year that ends in June. <\/p>\n

\n Morris\u2019 revised cable networks unit ad outlook for the current quarter \u201creflects a full quarter impact\u201d of that softness, followed by its continued impact in the April-June period. Morris now projects cable networks unit earnings before interest, taxes, depreciation and amortization (EBITDA) for the current January-March quarter of $773 million, down from $787 million. Ad revenue in the division he now estimates at $307 million, down 9.5 percent from the year-ago period and down from his previous projection of $334 million, or a 1.5 percent drop. For the April-June quarter, Morris predicts Fox\u2019s cable networks ad revenue will hit $334 million, down 6.7 percent from the year-ago period and from his prior forecast of $359 million, or a gain of 0.4 percent.<\/p>\n

\n Cahall\u2019s new model reduces his cable networks unit ad revenue by 6 percent from his prior estimate to $307 million, now predicting a 9 percent decrease from the year-ago period instead of a 3 percent drop. Like Morris, he cited \u201ccontinued direct-response weakness\u201d as the key driver after \u201cdirect-response weakened at\u00a0Fox\u00a0News coming out of the fiscal second quarter.\u201d And he predicted that the current Wall Street consensus estimate of $331 million would be coming down. <\/p>\n

\n For the upcoming quarter, Cahall forecasts another 9 percent cable channel unit ad drop, leading him to cut his full fiscal year estimate for Fox by 3 percent to $1.40 billion, down 4 percent from $1.46 billion in the previous fiscal year and below the Wall Street consensus of $1.46 billion. <\/p>\n

\n The Wells Fargo analyst also sees fallout from that for other entertainment stocks. \u201cOur revision is a negative read-through to peers such as Paramount Global, Walt Disney, Comcast\u2019s NBCUniversal, while we view Warner Bros. Discovery\u2019s calendar year first-quarter estimates as derisked enough,\u201d Cahall wrote, noting his forecast of a 13 percent ad drop for WBD. \u201cAds are still weak after what was viewed as a trough in December and stabilization thereafter.\u201d As a result, he called his forecasts for 8 percent ad revenue drops in the current quarter at Paramount and Disney, as well as a 5 percent decline at NBCU, excluding the 2022 Olympics, as examples of firms that \u201cmay have downside.\u201d<\/p>\n

\n Fox shares have traded between a 52-week low of $28.01 and a 52-week high of $41.14. In early Tuesday trading, the stock was down 2.6 percent at $32.75, up 8 percent for the year to date.<\/p>\n<\/p><\/div>\n