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News Corporation (NASDAQ:NWSAThe ) media company is diverse and has operations in the US, UK and Australia. It owns well-known brands like The Wall Street Journal, Herald Sun and The Times. Rupert Murdoch and his family trust control it. 39.4% share of the voting interests. The rich history of NWSA’s growth has seen it grow from a small Adelaide newspaper to a global media conglomerate. Through its 65% ownership in Fox Sports and Foxtel, the company is a strong player in Australia’s pay-TV market. It also leads the Australian real estate classifieds market through 61% ownership in REA Group. NWSA also has HarperCollins, the world’s largest book publisher. Move is a key digital property advertising platform in the US.
Q2 Earnings – Revenue down 7% despite growth in professional information and streaming Services, EBITDA Declines 30%
Revenue decreased by 7% in the quarter to $2.52 Billion, compared to $2.72 Billion in the previous year. FX had a 6% effect on the revenue decline. The segment’s EBITDA declined by 30% to $409 million. At the Dow Jones segment, the professional information business saw a 45% increase in revenue due to the acquisition of OPIS and CMA and growth in its Risk & Compliance products. Subscription video services also saw growth. Broadcast revenue declined slightly due to higher streaming revenues from Foxtel’s Kayo and BINGE. The News UK segment experienced continued growth due to The Sun’s strong digital advertising revenue, which demonstrates the expansion into America and the increased yield. CoStar Group and the company are also discussing possible Move sale.
EBITDA has fallen due to the company’s exposure in economic cycles. This decline was due to unfavorable currencies (17%) and other factors, such as rising interest rate on digital realty, declining sentiment on Dow Jones in the technology and financial sector, softening consumer spending and lower advertiser confidence on News Media. It comes after the COVID-19 epidemic fueled an 18% record-breaking increase in EBITDA last year. The EBITDA margin of 16.2% was lower than that of 21.6% during the previous period. This highlights the effect of cost inflation.
Release of earnings by company
Evolving Publishing Industry: The Challenges
The industry NWSA serves is in transition. Traditional print publishing models are being challenged by the proliferation of information and news outlets available in the digital space. This makes it easier for consumers to access the latest technological advances and innovation in technology. As consumers move from print to digital, this presents NWSA with significant challenges. Advertisers follow suit. The NWSA has a better position than its peers in publishing to make this transition. It is a trusted brand and has strong editorial resources. Competitors who have been cutting back are not as well-positioned. NWSA is financially sound, and has the lowest leverage of its peers. This means that it can transition to digital while exploring diversification options.
Looking for Alpha
Despite the many challenges facing publishing, the NWSA’s pay-television operations Fox Sports and Foxtel, which are owned by the National Television System Association, provide some protection. However they also face increasing competition from digital streaming options. The growth prospects for REA Group, NWSA, are strong and Move, its digital property advertising company, is making substantial progress in the US.
The Publishing Industry Shift: Navigating
Digital technology is transforming the publishing industry. It accounts for a large portion of NWSA core earnings. As more people turn to digital sources for news, information and entertainment, the traditional dominance of the industry is being lost. This has led to a decrease in advertising revenue and a decline in print-based audience. This has caused many publishers to cut back on printing or even shut down their entire operations.
In response to falling revenue from subscriptions and print advertising, Gannett Co. (GCI), the largest newspaper publisher in the US, and The Tribune Publishing Company (owners of the Chicago Tribune and New York Daily News), have both cut printing operations. Tribune Publishing has decreased print publication frequency, jobs, consolidated printing operations and, in some cases closed down print editions to make way for digital content. Gannett has reduced its print publication frequency, consolidated printing operations and invested in digital growth through partnerships and acquisitions.
The NWSA’s portfolio includes strong assets like Fox Sports and The Wall Street Journal. These assets provide a solid foundation. Also, NWSA’s investments into digital video on-demand, in particular in Foxtel Now streaming services and Kayo, have been promising. Despite the difficulties faced by the legacy newspaper publishing industry, it continues to generate significant free money flow, though at a decreasing rate.
NWSA’s strong free cash flow and low leverage position it well to weather any transition from traditional publishing to digital, as well as to explore other business possibilities.
Buybacks of shares and dividends
The dividend has remained at 20c per share since 2015 as NWSA used the cash to purchase new businesses. NWSA announced in September 2021 a USD 1 Billion buyback.
Valuation
The shares are fair priced, as I believe the fair value of each share is $19. Revenues will grow at 1%, with the digital channel growth partially offset by the decline in print media. In the future, I see some margin compression. Here are my main assumptions.
Author estimates & company filings
The multiples for this stock are lower than historical, with a $19 share price. This is due in part to the secular decline printed media.
Author estimates, Seeking Alpha & company filings
Uncertainty and Risk
Advertising and marketing industry depends on consumer sentiment and corporate confidence. This is a concern for the news media unit as it generates a large portion of its revenue through advertising. The current health crisis could lead to a financial crisis that will affect other revenue sources like subscription video services or property-sensitive, digital real estate services. The long-term challenge facing NWSA is to retain its audience, as the industry shifts to the internet. It is crucial that the company’s cost structure be adjusted to compensate for the lower advertising revenue in the digital marketplace.
Conclusion
NWSA has a strong financial position with a strong balance sheet and steady cashflow. This stability distinguishes it from other media companies and allows it to adapt to changing media landscapes. Its cash flow is aided by its portfolio of online real estate classifieds businesses that have been successful in Australia and the U.S.
The publishing industry faces major challenges due to technology and innovation that changes consumer preferences and behavior. While the company is working to change its business model and monetize its online content, external factors could still affect it. Although NWSA’s financial strength provides some protection, it could prove costly to acquire assets to diversify earnings. Overall, I believe that the shares are fair priced and recommend remaining on the sidelines.