WSJ Holds its Ground, Positions News Corp for Growth
News Corp (NASDAQ:NWS) is a media conglomerate that competes with New York Times (NYSE:NYT), Time Warner (NYSE:TWX), Disney (NYSE:DIS), Viacom (NYSE:VIA) and CBS (NYSE:CBS) in a variety of businesses ranging from broadcasting and media networks to filmed entertainment and publishing.
We estimate that about 13% of News Corp’s value can be attributed to its newspaper business which includes Wall Street Journal, UK newspapers, Australia newspapers as well as revenues from Dow Jones. While we are admittedly conservative in our forecasts for the print newspaper market in general, we remain bullish on the growth prospects of Wall Street Journal revenues. We anticipate that Wall Street Journal’s revenue contribution to News Corp’s total newspaper business will increase from about 24% today to 35% by the end of our forecast period.
We maintain a price estimate of $19.91 for News Corp, roughly 20% ahead of market price.
Newspaper Industry Taking a Hit
According to the Audit Bureau of Circulations, the circulation of newspapers in the U.S. declined 5% during the six months ended Sept 30 2010. [1] Not only has circulation declined, but print advertisement has also suffered, causing further reductions in revenues for print newspapers. According to estimates from eMarketer, the overall advertisement spending in the U.S. is expected to grow by 3% in 2010 to nearly $169 billion. However, print advertisement is actually expected to decline by more than 8% in 2010 and about 6% in 2011. [2]
However, WSJ Maintaining its Market Position
According to the Audit Bureau of Circulations, while overall circulation of newspapers in the U.S. has declined, the Wall Street Journal was actually able to increase its distribution by almost 2% during the six months ended Spet 30 2010. [1]
So what is WSJ doing right? The company’s affluent reader base provides better opportunities for News Corp to drive both subscription and advertisement revenues. WSJ’s audience demographic is very promising for its growth prospects. According to a report that was revised in early 2009, the average annual income of an employed WSJ subscriber was more than $200,000, and about 54% of these subscribers represented top management in their respective firms. [3] Additionally, the education status of WSJ subscribers is promising with about 87% of them being college graduates. [4]
An educated and affluent subscriber base can provide a more desirable target for advertisers. Apart from the sustainability of advertising revenues that this creates, WSJ’s affluent customer base can also make the journal’s aggregate subscriptions more resistant to economic fluctuations. With WSJ poised for growth, we estimate slight improvement in newspaper margins, with WSJ’s strong market position allowing it to overcome stunted growth in the overall market.
We recently wrote an article contending that mobile devices and social networking could lift New York Times’ online business. (New York Times Online Can Add +25% to NYT Value) Shift to digital media could do the same for WSJ and potentially raise margins beyond our base forecasts. The upside impact of this effect could add 5% to our price estimate for News Corp of $19.91, which already stands about 20% ahead of market price.
Drag the trend-line in the chart below to see how various newspaper profit margin scenarios impact News Corp’s stock value. And let us know your perspective on this metric by leaving feedback in the comment box below.
You can see the complete $19.91 Trefis price estimate for News Corp’s stock here.
- Newspapers in 2010: Another Bad Year, But the Bleeding Slows, thewrap.com, Dec 19 2010 [↩] [↩]
- Online Advertising Overtakes Print Ads For First Time, dailyfinance.com, 20 Dec 2010 [↩]
- The Wall Street Journal Audience, wsjmediakit.com, revised on 26th Feb 2009 [↩]
- ref:1 [↩]