A house divided cannot stand as Fox Corp (FOXA, FOX) recently demonstrated. In a shocking move, the parent company of Fox News unceremoniously parted ways with on-air personality Tucker Carlson. Immediately, FOXA stock stumbled sharply, paring back some losses to close Monday down 2.91% against the prior session. Subsequently, activity soared in the derivatives market for its Class A and B shares, with both incurring negative implications.
As the Associated Press reported, Fox mentioned that its news network and Carlson “agreed to part ways.” However, the company offered no explanation for the shocking decision, only stating the now obvious – the last broadcast of the immensely popular “Tucker Carlson Tonight” aired last Friday. Interestingly, at the time, Carlson ended the show by saying, “[w]e’ll be back on Monday.”
Naturally, observers will notice the timing of the move. Per the AP, the “break comes amid a cascade of bad legal news for Fox and Carlson. A week ago, Fox agreed to pay more than $787 million to settle a lawsuit with Dominion Voting Systems over the network's airing of false claims following the 2020 presidential election — shortly before Carlson was expected to be called to testify.”
Conspicuously, Carlson’s sudden departure wasn’t the only stunning development in the cable news ecosystem. On the same day, CNN axed its own controversial anchor, Don Lemon.
However, the AP notes that Carlson commanded greater influence than Lemon, thus generating higher viewership and potential problems for Fox News if it can’t find a suitable replacement. Unsurprisingly in this context, options traders targeted both FOXA and FOX.
Following the April 24 close, options volume for FOXA reached 12,735 contracts against open interest of 30,935. The delta between the Monday session volume and the one-month average volume came out to 613.05%. For FOX, volume hit 4,050 contracts against open interest of 2,323. The aforementioned delta for the Class B shares came out to 1,507.14%.
The put/call volume ratio for FOXA reached 4.77 while the ratio for FOX soared to 37.94. On paper, both readings feature pessimistic implications as puts generally represent bearish bets.
FOXA Stock May Suffer From Lack of a Suitable Successor
Based on a cursory look at the circumstance, FOXA stock doesn’t seem in immediate danger. Since the beginning of this year, shares moved up nearly 8%. It’s almost on par with the benchmark S&P 500, which gained slightly more than 8% during the same period. However, where the media giant goes from here is anyone’s guess.
As the AP noted, Carlson’s “populist tone about elites who are out to get average Americans rang true with Fox's predominantly conservative audience, even leading to talk about Carlson becoming a political candidate himself one day.”
Another issue that complicates the framework is the mutual separation with weekend host Dan Bongino. Last week, the former Secret Service agent stated that he and Fox News couldn’t agree on a new contract. “It's not some big conspiracy,” Bongino said on his podcast. “There's no acrimony. This wasn't like some WWE brawl that happened. We just couldn't come to terms on an extension.”
It’s possible that Fox could slide on-air personality Jesse Watters into Carlson’s hours. However, Watters would have big shoes to fill. Carlson himself had to replace a juggernaut when Fox News abruptly terminated Bill O’Reilly. When the journalism veteran exited in 2017, he had the highest ratings of any Fox News personality.
According to the Los Angeles Times, Carlson never reached such heights when he replaced O’Reilly. Still, he quickly attracted fans young and old with his populist message. Emboldened by Carlson’s “based” messaging, the host brought sarcastic and sometimes irreverent vigor to the broader conservative movement.
While Watters could potentially tap into the angst that drove Fox News to remarkable success (especially compared to left-leaning rivals CNN and MSNBC), competing media platforms may snag Carlson for his services. As well, the host can launch his own program, directing disgruntled viewers away from Fox.
The Next Steps Will be Critical
For FOXA stock, the underlying leadership team’s next steps will be crucial to establishing a pathway of success post-Tucker Carlson. First and foremost, Fox News must elect a viable successor, someone that will support old school conservative principles but also bolster populist ideals that made Carlson so attractive across a wide demographic. Otherwise, a meat-and-potatoes Republican might not resonate with the new-guard conservative movement.
As well, the prime-time slot must be filled with a host that tacitly has the approval of former President Donald J. Trump. Though anything can happen between now and when the 2024 presidential campaign begins in earnest, Trump commands significant if not unprecedented influence and power over the GOP.
Of course, it’s the connection with the former Commander-in-Chief’s most controversial stances that got Fox into the predicament it finds itself in. However, not aligning with Trump may lead to an even worse situation: hardly attracting any viewers. Almost certainly, there will be tough days ahead for management to navigate.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
