How Are News Corp’s Book Publishing Operations Trending?

News Corp‘s (NASDAQ:NWSA) book publishing business has been trending well over the past few years, led by some of its popular titles such as Divergent series. The segment revenues have grown at a steady pace and now account for close to 20% of the company’s overall revenues. However, the EBITDA margins are lower and stood at 10% in 2014, according to our estimates. We believe that the company will continue to see steady revenue growth in book publishing, primarily led by a growth in e-books sales. With the growth in e-book sales, which have lower production and distribution costs, News Corp can look forward to better margins in the coming years. While the growth rate of e-book sales has slowed in the recent years, there is a healthy market for both print as well as digital editions of books. On that note, we discuss below the trends in book publishing and our estimates for News Corp.

We estimate revenues of about $8.86 billion for News Corp in 2015 with EPS of $0.36, which is below the market consensus of $0.50, compiled by Thomson Reuters. We currently have a $20 price estimate for News Corp, which is around 20% ahead of the current market price of $17.

See our complete analysis for News Corporation

E-Book Sales Have Slowed In The Recent Past But Outlook Remains Positive

The growth in e-book sales have slowed in the recent past. However, we continue to believe that it will have a place in the future of book publishing. Earlier in January, Apple (NASDAQ:AAPL) said that it added 1 million new iBook users every week after it was being preinstalled in Apple devices following the the iOS8 release. ^[1] While this growth for Apple can partly be attributed to its family sharing feature, this also reflects that there is a huge market for e-books. Price Waterhouse Coopers also claims that e-book sales will exceed print sales by 2018. ^[2] While we also believe that e-books will be the leader in unit sales, it may not happen in the short to medium term. For instance, in the first six months of 2014, 23% of the U.S. unit sales were e-books, 25% hardcover and 42% paperbacks. ^[3] Looking at this data, it appears that it may take some more time for e-books to become the leader in unit sales.

How Are News Corp’s Book Publishing Operations Trending?

News Corp’s Book Publishing segment consists of HarperCollins Publishers, one of the largest English-language consumer publishers in the world, based on global revenue, with operations in the U.S., the U.K., Canada, Australia, New Zealand and India. HarperCollins is associated with popular authors such as Mitch Albom, Veronica Roth and Rick Warren and offers a number of well known popular titles, including The Hobbit, Goodnight Moon, To Kill a Mockingbird and the Divergent series. The company was quick to move to a digital platform and provides more than 35,000 e-book titles across devices such as Amazon Kindle and Apple’s iBook.

These factors aided its book publishing revenues, which increased from $1.14 billion in 2007 to $1.61 billion in calendar year 2014. ^[4] The segment revenues trended well in the recent past, as the company benefited from high demand for Veronica Roth’s Divergent series. Moreover, the recent acquisition of Harlequin is aiding the top line as well as the bottom line of the company, as was evident from the recent quarterly earnings (see – News Corp Benefits From A Solid Growth At Book Publishing And Digital Real Estate Operations). Also, the company is seeing high growth in e-book sales and it now accounts for over 20% of overall consumer revenues for the company. It must be noted that digital books have lower production and distribution costs than print books and this will help the company see margin growth in the long run. We currently estimate segment revenues to be north of $2 billion by the end of our forecast period and an estimated EBITDA margin of 12% will translate into EBITDA of $250 million, representing 20% of the company-wide EBITDA.

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1. The ebook is dead. Long live the ebook, The Guardian, Feb 1, 2015 [↩]
2. PwC Claims eBook Sales Will Exceed Print in 2018, Digital Reader, Nov 18, 2014 [↩]
3. Print Continues to Outsell Digital During First Half of 2014, Publishing Perspectives, Oct 15, 2014 [↩]
4. News Corp’s SEC Filings [↩]