Twenty-First Century Fox (ASX: FOX) has delivered yet another quarter of solid earnings.
Its key measure of operational success, operating income before depreciation and amortisation (OIBDA), came in essentially on target at US$1.62 billion. This was essentially the same as the corresponding period last year as the 18%, or $1 billion, increase in revenue to US$7.06 billion was offset by a $932 million increase in operational expenses. The company noted that first-quarter profit was lower at $768 million, compared with $2.25 billion in the previous corresponding period, which included a $1.4 billion asset sale.
Around half of the revenue growth was organic from the company's Cable Network Programming, Filmed Entertainment and Television divisions, with the remainder due to acquisitions. The result was constrained by significant investment in the group's US pay TV business with the launch of two new channels, Fox Sports 1 to compete against ESPN, and FXX, which targets a young demographic.
The investment is likely to benefit Fox in the years to come, as the group targets $9 billion of OIBDA by 2016. Division-wise, the Filmed Entertainment revenue rose by 9.4% to $2.12 billion as hit movies The Heat and The Wolverine performed well at the box office, while the Television division revenue increased 7.8% following the purchase of a controlling stake in Sky Deutschland.
The all-important cable television sector performed strongly, with advertising revenue increasing 6% domestically, and 21% in the US. This was boosted by strength in the FX network, regional sports networks and National Geographics channels. Fox News dragged on the results compared to last year when the US election pushed up advertising prices.
In a recent research report, analysts at Deutsche Bank estimated that Fox's share price could rise to $45 within the next 12 months. Deutsche believes that Fox has the best and fastest growth prospects in the US of its peers, and rates the stock as the second cheapest in its international sector.
The broker also likes that Fox has a dominant position in sport in Australia and is introducing a number of new channels in the US to increase market share. The revenue generated from sport broadcasting is expected to offset any seasonal weakness in the film industry and allow the company to continue fighting off competitors such as Netflix (NASDAQ: NFLX) and rival US cable television services.
Foolish takeaway
Fox's share price has trended steadily higher since listing early this year and bullish analyses from a number of brokers looks set to push the share price higher over the coming 12 months. The share price dipped following the result as it was below consensus of US analysts, however Australian reports were generally positive.
There are few large risks in the business model and the entertainment company is attempting to grow its exposure to developing markets to push up earnings. Investors looking for a growing company, despite a small dividend payout of just 1%, should consider Fox as a long-term buy and hold.
