Another Mixed Quarter for Fox

We maintain our wide moat rating and our fair value estimate of $43. As a reminder, our fair value estimate is probability weighted with a 75% chance that the merger closes. We currently value the combined entity at $46 per share, which represents 0.2745 shares of Disney at our standalone Disney fair value estimate of $130, plus our estimated $10 fair value estimate for the remaining stub company. If the deal was to collapse, our standalone fair value for the firm is $35.

Quarterly revenue was down 2% versus a year ago to $7.4 billion due to a tough comp, as Fox had the Super Bowl last year. Excluding the Super Bowl, revenue grew by 4%, driven by strong improvement at cable (up 17%), which more than offset the declines at filmed entertainment (down 23%). The cable segment benefited from 10% domestic affiliate fee growth as Fox continues to drive fee growth at its core brands while expanding the sub base of its newer channels. Domestic advertising revenue improved by 3%, as the strength at Fox News more than offset the impact of fewer originals on FX. International cable continues to expand with 9% revenue growth, driven primarily by the improvement in affiliate fees (up 14%). While a large portion of revenue and profit from the domestic cable division will remain at Fox (Fox News and FS1), Disney (or Comcast) will capture all of the benefit from Fox’s large investment in expanding its international cable business. EBITDA margin for the cable segment improved by 217 basis points to 38.1% as revenue growth more than offset the increased programming and marketing costs.

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