Harlequin Helps News Corp Post Higher Earnings
News Corporation (NASDAQ:NWSA) recently reported its Q1 fiscal 2015 earnings with 4% revenue growth and 21% jump in EBITDA. (Fiscal years end with June.) Adjusted earnings were $0.09 per share as compared to $0.03 per share in the prior year quarter. [1] The results came in on expected lines with continued declines in print media and strong growth at other segments. While the company continues to see growth at HarperCollins and REA, print advertising remains a concern.
We estimate revenues of around $8.77 billion for News Corp in calendar year 2014, with EPS of $0.53. We currently have a $18 price estimate for News Corp, which is around 15% ahead of the current market price.
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See our complete analysis for News Corporation
Print Media Continues To See Lower Advertising Income
News and information services revenues declined 3% to $1.45 billion, led by a 7% decline in advertising income. The decline in advertising was across the geographies with a 5% drop in Australia and 6% in the U.K. [1] The segment EBITDA also declined 21% to $105 million due to lower advertising at Dow Jones.
We estimate that News & Information Services account for more than 40% of News Corp’s stock value. While the company’s digital media assets are growing, they are not able to offset the declines seen in the print media. Moreover, the growth of the Internet gives users the access to free and abundant information online, thereby making print media less lucrative for advertisers. However, News Corp has a portfolio of strong brands, such as The Wall Street Journal, which has been growing steadily over the past few months. [1] Given these trends, we expect the segment revenues to continue to decline in the near term and stabilize in the long run driven by growth in digital sales. Moreover, the company is trying to reduce its reliance on advertising income, which will provide a stable growth outlook in the long run. Our revenue forecast for 2014 currently stands around $6.5 billion and an estimated EBITDA margin of around 7.5% will translate into EBITDA of $475 million by the end of the year.
Harlequin Boosts Book Publishing Operations
Book publishing revenues increased 24% to $406 million while EBITDA jumped 28% to $55 million. The solid segment performance was primarily a result of the company’s recent acquisition of Harlequin, which contributed $57 million in the quarterly sales. [2] Moreover, the company continues to benefit from high demand for Veronica Roth’s Divergent series. During the quarter, News Corp sold 3.5 million units of the Divergent series. The revenues from e-book sales rose 28% and accounted for 22% of overall consumer revenues for the quarter. [1] It must be noted that digital books have lower production and distribution costs than print books and this will help the company see continued growth in the long run. News Corp is associated with popular authors such as Mitch Albom, Veronica Roth and Rick Warren and sells some of the popular titles, including The Hobbit, Goodnight Moon, To Kill a Mockingbird and the Divergent series. The company was quick to move to digital platform and provides more than 35,000 e-book titles across devices such as Amazon Kindle and Apple’s iBook. The growth in digital book sales will boost the segment top line as well as bottom line in the coming years due to the lower costs associated with digital publishing. We currently estimate segment revenues of $1.51 billion for the calendar year 2014 and an estimated EBITDA margin of around 10% will translate into EBITDA of $150 million by end of the year. It must be noted that we have revised our book publishing revenue estimates from $1.4 billion to $1.51 billion and EBITDA margins from 7.5% to 10% for 2014, reflecting the impact of Harlequin acquisition and the trends seen in e-books sales so far this year. We now estimate the segment revenues to be north of $2.2 billion and EBITDA to be around $300 million by the end of our forecast period.
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