21st Century Fox's Movie Studio Is Making Waves

| About: Twenty-First Century (FOXA)

Summary

Fox's movie studio, 20th Century Fox, became the first studio to reach $1 billion in gross domestic revenue during 2014.

FY 4Q2014 will see a more than 200% revenue increase in its filmed entertainment division, which accounts for nearly one-third of Fox's overall revenue.

With strong earnings in FY Q4 2014 and easy revenue comparisons remaining in 2014, 21st Century Fox has more than 20% upside.

Lost in the news of 21st Century Fox's (NASDAQ:FOXA) potential acquisition of Time Warner (NYSE:TWX), has been Fox becoming the first movie studio to reach $1 billion in 2014 in the domestic market. 20th Century Fox, owned by 21st Century Fox, eclipsed the $1 billion mark on July 13, 2014. This comes after 20th Century Fox failed to break the top 5 studios in domestic gross sales for 3 years in a row. From January 1 - July 17, 2014, the studio has brought in $1,052 million compared to just $612 million over the same time period last year. In fact, the studio should surpass the 2013 total of $1,064 million by this weekend. This stunning turnaround should easily surpass the studio's all-time record set in 2010 of $1.48 billion, when Avatar was released.

(January 1 - July 17)

Domestic Gross ($millions)

2014

$ 1,052

2013

$ 628

2012

$ 565

2011

$ 565

2010

$ 1,091

2009

$ 820

2008

$ 663

Click to enlarge

Source: BoxOfficeMojo

20th Century Fox is no longer taking a back seat to the other major studios. Their top 5 movies this year alone have grossed over $1.3 billion in overseas revenue, bringing their world-wide total to over $2.6 billion through July 17, 2014. What's even more impressive is the studio still has 9 additional movies scheduled for release this year. The remaining line-up virtually guarantees the studio will make 2014 a record breaking year for the company, which should make Fox a top 3 grossing movie studio.

(January 1 - July 17, 2014)

Domestic Gross ($millions)

Market Share

20th Century Fox

$ 1,052

18.3%

Warner Brothers

$ 970

16.9%

Sony/Columbia (NYSE:SNE)

$ 866

15.1%

Buena Vista/Disney (NYSE:DIS)

$ 818

14.3%

Universal/Comcast (NASDAQ:CMCSA)

$ 580

10.1%

Paramont/Viacom (NASDAQ:VIAB)

$ 539

9.4%

Lionsgate (NYSE:LGF)

$ 296

5.2%

Click to enlarge

Source: BoxOfficeMojo

Impact on the stock

9 months ended 3/31

($ millions)

2014

2013

Y/Y % change

-Cable Network Programming

$ 8,926

$ 7,928

13%

-Television

$ 4,265

$ 3,764

13%

-Filmed Entertainment

$ 6,876

$ 6,607

4%

-Direct Broadcast Satellite

$ 4,437

$ 3,060

45%

-Other

$ (1,061)

$ (896)

18%

Total Revenues

$ 23,443

$ 20,463

15%

Click to enlarge

Source: 21st Century Fox earnings release

21st Century Fox is far more diverse than just a movie studio. It has a variety of other revenue generating streams stemming from television contracts and network programming. Filmed entertainment accounts for roughly 29% of the company's revenue. For the 9 months ended March 31, filmed entertainment has only increased 4% year-over-year. However, FY Q4 2014 was a blowout quarter for 20th Century Fox. Domestic gross sales totaled approximately $688 million compared to $282 million in FY Q4 2013. That's a 243% increase from last year and a 326% quarter-over-quarter sequential increase in domestic sales. When world-wide revenue is included, the numbers will be an absolute blow-out. Analysts are expecting FY Q4 2014 EPS of $0.38. With tremendously strong results from 20th Century Fox, the company should have no problem beating the consensus estimate when the company reports earnings on August 6, 2014.

Looking forward through the rest of 2014, the filmed entertainment division (20th Century Fox) has remarkably easy quarterly comparisons to beat over last year. 20 days into FY Q1 2015 and the studio is nearly half way to the FY Q1 2014 domestic gross total. Even more impressive will be the comparison between FY Q2 2015 and FY Q2 2014. FY Q2 2014 had a domestic total of just $117 million. With 7 movies scheduled to be released during FY Q2 2015, including, Gone Girl, Book of Life, The Penguins of Madagascar, Exodus: Gods and Kings, and Night at the Museum: Secret of the Tomb, the filmed entertainment division will absolutely crush last year's quarterly comparison.

The current analysts' consensus price target on the stock is $40.34, or 22% higher than today's price. Of the 24 analysts covering the stock, there are 6 strong buys, 16 buys and 2 holds. Whether or not the Time Warner acquisition goes through, 21st Century Fox is an attractive buy at this point.

Conclusion

2014 is shaping up to be a strong year for both 21st Century Fox and its movie studio, 20th Century Fox. The stock fell over 5% on the failed Time Warner take-over talk, but investors are neglecting the strength of Fox as a stand-alone company. Success in their filmed entertainment division should drive revenue through the rest of 2014 and reestablish the movie studio as a dominant player in the industry. For the past 3 years, 20th Century Fox has failed to reach 10% market share, but with a current market share of 18.3% and a strong movie lineup through the rest of 2014, 20th Century Fox will reestablish itself among the best in the industry.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.