Currency Headwinds Weigh On News Corp’s Q1 2017 Earnings

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News Corp (NASDAQ:NWSA) reported mixed first quarter results, as its revenues came in ahead of expectations but earnings per share missed. The company’s revenues decreased 2% year-over-year (y-o-y) to $2 billion, beating analysts’ projections by $10 million, primarily due to impact of foreign currency fluctuations. The media company witnessed soft print advertising market and continued weakness in the British Pound. As a result, News Corp’s revenue declined in the news and information service (-5%) segment and the book publishing segment (-5%). However, the digital real estate (18%) segment posted strong growth on the back of higher revenues at both REA Group and Move. The media company also posted negative earnings of 1 cent per share, compared to positive 5 cents per share in prior year.

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News Corp’s operating expenses declined 4% y-o-y due to a decrease in operating expenses at the news and information services as a result of lower newsprint, production and distribution costs and the impact of cost savings initiatives, partially offset by increased operating expenses from the timing of sports programming rights costs and the negative impact of foreign currency fluctuations at the cable network programming segment.

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Digital Real Estate – The Engine Of Growth

The Digital Real Estate segment primarily consists of the News Corp’s interest in REA Group and Move. In the first quarter, the total segment revenues increased 18% y-o-y to $226 million and segment’s earnings before interest, taxes, depreciation, and amortization (EBITDA) also grew 18% y-0-y to $67 million due to higher revenues at both REA Group and Move.

At REA Group, revenues increased 22% y-o-y, primarily due to an increase in Australian residential depth revenue, as a favorable product mix offset lower listing volumes, higher revenues due to the acquisition of iProperty and the positive impact of foreign currency fluctuations. For Move, revenues increased 9% y-o-y, largely due to an increase in non-listing media revenues. The company revamped its Move site and retooled its products in the first quarter.

Continued Headwinds In News And Information Services

News and Information Services segment continued its downtrend and witnessed a 5% y-o-y decline in its revenues in the first quarter. The revenue decline was mainly due to lower advertising revenues resulting from weakness in the print advertising market and a negative impact from foreign currency fluctuations. Lower readership of print media is forcing advertisers to spend less on print ads. The segment’s circulation and subscription revenues decreased 4% y-o-y, again as a result of a negative impact from foreign currency fluctuations.

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Book Publishing Revenues Could Boost In Near Term

In Book Publishing, HarperCollins reported a 14% y-o-y increase in EBITDA despite a 5% decline in revenues for the firt quarter, which was largely the result of comparison with last year’s sales of Go Set a Watchman. The segment EBITDA grew by 14% y-o-y, driven by the mix of titles including Black Widow by Daniel Silva.

In the second quarter, the company has optimistic expectations from release of the highly anticipated Settle For More by Megyn Kelly and Carve the Mark by Veronica Roth (author of the Divergent triolgy).

Cable Network Programming Performs Moderately

The Cable Network Programming segment consists of Fox Sports Australia, the leading sports programming provider in Australia. In the first quarter, the segments revenue increased 3% y-o-y to $128 million due to higher advertising revenues as well as higher ratings across the board. However, its segment EBITDA declined by 50% y-o-y, driven by higher sports programming rights costs primarily related to the Rugby League simulcast and certain one-time cricket rights costs.

Guidance

In Digital Real Estate, the company expects continued revenue and EBITDA growth for the segment for the second quarter. Realtor is expected to roll out Showcase 2.0 later in the second quarter and the revenue boost is expected to be more second-half weighted reflecting the timing of contract renewals. News Corp expects strong improvement in its EBITDA contributions from Realtor this year. For the Book Publishing segment, the company expects to see EBITDA improvements in the remainder of the year largely driven by growth in digital revenue at HarperCollins. News Corp’s Fox Sports Australia could benefit from lower rights costs in the second quarter and could witness an improvement in EBITDA versus the prior year. Reuters’ compiled analyst estimates forecast revenues of $2.1 billion and earnings per share of $0.20 in Q2 2017.

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