Overview: Maverick Capital's 1Q14 positions (Part 3 of 7)
Maverick Capital and 21st Century Fox
Lee Ainslie’s Maverick Capital started new positions in Ashland Inc. (ASH), 21st Century Fox (FOXA), Cubist Pharmaceuticals Inc. (CBST), and Ctrip.com International (CTRP). Top positions sold were eBay Inc. (EBAY) and Zoetis Inc. (ZTS).
Maverick Capital initiated a new position in 21st Century Fox (FOXA), which accounts for a 1.81% position in the fund’s 1Q portfolio.
21st Century Fox is a diversified media and entertainment company. It was created last year from the split of News Corp. into two companies. 21st Century Fox comprised the entertainment businesses while the publishing assets were retained by News Corp. Fox’s Cable Network Programming segment consists of the production and licensing of programming distributed through cable television systems, direct broadcast satellite operators, and telecommunication companies primarily in the U.S., Latin America, Europe, and Asia. Its television operations primarily consist of FOX, MyNetworkTV, and the 28 television stations owned by the company. The Filmed Entertainment segment derives revenue from the production and distribution of live-action and animated motion pictures and television series. The Direct Broadcast Satellite (or DBS) Television segment consists of the distribution of programming services via satellite, cable, and broadband directly to subscribers in Italy, Germany, and Austria. It comprises SKY Italia and the majority-owned subsidiary Sky Deutschland AG.
In February, 2014, 21st Century Fox acquired an additional 31% stake in the YES Network for approximately $680 million and funded approximately $160 million of additional upfront costs on behalf of YES Network. The YES Network delivers exclusive live local television coverage of New York Yankees baseball and Brooklyn Nets basketball, as well as other leading local and national sports-related programming.
3Q revenue growth driven by Super Bowl ads, Cable Networks
21st Century Fox’s fiscal 3Q14 results missed on earnings, but beat on revenues. Third quarter profit declined due to unfavorable comparison to same quarter the year before when the company recorded one time gains from the acquisition of additional stake in Sky Deutschland. Fox reported net income of $1.05 billion, or $0.47 a share, compared with $2.85 billion, or $1.22, a year earlier. The management said on the earnings call that, “This year’s third quarter reflected the recognition of various tax benefits, which reduced our overall effective tax rate in the quarter to approximately 20% and approximately 25% for the nine months.”
A 12% growth in revenue to $8.22 billion was driven by a $338 million increase at the Television segment, led by the broadcast of Super Bowl XLVIII, and a 11% increase at the Cable Network Programming segment, led by continued global affiliate revenue growth. Affiliate revenue grew due to higher average rates per subscriber across most cable channels, higher retransmission consent revenues, and the conversion and related launch of new channels such as Fox Sports 1, STAR Sports, and FXX. It also saw increased contributions from affiliates, including the YES Network and Hulu, in which Fox owns a 33% stake. Hulu’s results benefited from higher subscription and advertising revenues, Fox said in its 10Q filing.
Filmed Entertainment sees revenue growth from subscription video on demand (SVOD)
Filmed Entertainment results reflected higher contributions from the television production businesses, led by higher subscription video on demand (SVOD) revenues driven by the sale of series to Amazon, which included 24, How I Met Your Mother, and The Americans, and the syndication of Modern Family. However, revenue at the segment decreased due to lower worldwide theatrical and home entertainment revenues. The management said the animation movie Rio 2 “had a strong showing domestically” and added they were “optimistic about the upcoming releases of X-Men-Days of Future Past, The Fault in Our Stars, and Dawn of the Planet of the Apes.”
Fox buys $1 billion worth of shares in fiscal year
In August, 2013, Fox’s board authorized the repurchase of $4 billion of Class A Common Stock, and intends to complete this stock repurchase program by August 2014. During the quarter, Fox said it repurchased 31.2 million shares of Class A Common Stock for $1 billion bringing the total fiscal year to date repurchase to 84.7 million shares of Class A Common Stock for $2.8 billion.
Browse this series on Market Realist: