News Corp Earnings Preview: Print Media To Remain A Drag On Results
News Corp (NASDAQ:NWSA) is scheduled to announce its second quarter fiscal 2016 earnings on Thursday, February 4. [1] The company continued to struggle amid changing consumer behavior towards digital media. Despite enhancing its digital expertise by way of acquisitions, News Corp failed to grow its revenues in the September quarter, which fell 4% y-o-y to $2 billion. [2] We expect continued revenue headwinds, especially news and information services, to weigh on the coming results.
One part of the company’s multi-pronged strategy to return to profitability is to maintain strict control over its operating expenses. As a result, in the September quarter, operating expenses were down 6% y-o-y to $1.2 billion. Despite fiscal prudence, losses in the top line caused the company-wide EBITDA margin to fall by 1 percentage point to 8.2%.
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Our price estimate of News Corp’s stock is $18, significantly above the current market price.
See our complete analysis for News Corporation
News And Information Services To Continue The Downward Trend
News and information services revenues declined 11% y-o-y to $1.3 billion in the September quarter. Advertising, which was responsible for 53% of all segment revenues, fell 13% y-o-y, primarily due to negative foreign currency fluctuations, weakness in the print advertising market, most notably in Australia, and lower revenues at News America Marketing. [2] On the other hand, circulation revenues declined by a lower figure of 6%, helped by higher subscription pricing and cover price increases. We expect foreign currency headwinds and soft advertising demand to slow down the revenues from the segment this quarter as well.
Digital Real Estate To Be A Growth Driver
The digital real estate segment has been earmarked to be the company’s main growth driver in the future. According to our estimates, it is responsible for 35% of the company’s value. News Corp said that it believes Move Inc. (acquired in November 2014) and REA Group to be the core pillars of its future profitability. Correspondingly, revenues from the segment grew by a substantial 71% y-o-y to $79 million in Q1, fiscal 2016. This was due to the company’s efforts to extend its outreach in Southeast Asia through acquisitions such as PropTiger.com and iProperty, and the inclusion of the results of Move Inc. With all the focus on this segment, we expect digital real estate revenues to continue to grow this year.
Book Publishing Revenues To Rise Over Holidays
The book publishing segment is the company’s second biggest revenue source, after news and information services. Revenues from book publishing did not see any meaningful rise in the September quarter. Moreover, digital sales, comprising of e-books and digital audio books, made up only 20% of its consumer revenues, a 12% decline compared to the year ago period. [2] Stagnant book publishing revenues were a result of an industry-wide slowdown in the demand for e-books and a difficult year-ago comparison. However, the company remained confident about growing its book publishing revenues over the holiday season, even as it continued its integration with Harlequin.
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Notes:- News Corp to report second quarter earnings, News Corp Press Release, January 2016 [↩]
- News Corp Reports First Quarter Fiscal 2016 Results, News Corp Press Release, November 2015 [↩] [↩] [↩]