News Corp: After Growing At Double-Digits For 2 Years, Why Is Revenue Growth Expected To Flatten?

News Corp (NASDAQ: NWSA) saw its total revenue grow at a CAGR of 11.3% from $8.1 billion in FY 2017 to $10.1 billion in FY 2019, which marks an addition of $2 billion to its revenue base (the company’s financial year ends in June). However, total revenue is expected to remain almost flat with the revenue growth rate likely to drop to 0.5% in FY2020. Revenue growth is expected to decline after two years of double-digit growth, as the recent high growth was achieved mainly due to inorganic growth strategies and business combinations, the benefits of which are already accounted for in FY 2018 and 2019. Though in absolute terms revenue is expected to remain elevated, the growth rate is expected to drop due to the high base effect.

You can view the Trefis interactive dashboard – News Corp: How Does News Corp Make Money? – to understand the revenue trends for News Corp and alter key assumptions to arrive at your own revenue estimates for the company.

Business Segments Explained

News Corp is a diversified media and information services company with the following 4 operating divisions-

1. News & Information Services: Revenue is derived primarily from the sale of advertising, circulation and subscriptions, as well as licensing. It consists of Dow Jones, News Corp Australia, News UK, the New York Post, and News America Marketing.
2. Book Publishing: The segment derives revenues from the sale of general fiction, nonfiction, children’s, and religious books in the U.S. and internationally.
3. Digital Real Estate Services: The segment generates revenue through property and property-related advertising and services, including the sale of real estate listing and performance-based products to agents, brokers and developers, display advertising on its residential real estate and commercial property sites, and residential property data services to the financial sector.
4. Subscription Video Services: Segment consists of New Foxtel and FOX SPORTS Australia, and covers sports, general entertainment, movies, documentaries, music, children’s programming, and news and broadcast rights to live sporting events tailored to the Australian market. Revenue is primarily derived from monthly affiliate fees received from pay-TV providers based on the number of subscribers and advertising.

Segment-Wise Revenue Performance

News & Information Services

• After remaining almost flat in FY2018, revenue decreased in FY2019, led by currency fluctuation, weakness in print advertising market, and lower revenues at News America Marketing (which the company is looking to sell).
• Segment revenue is expected to see further decline in the next two years, driven by changing consumer preferences with the advent and growth of digital media.

Subscription Video Services

• The segment added over $1.7 billion in revenues in the last two years, benefiting immensely from combining Foxtel Group and FOX Sports. The combined entity, in which NWSA has a 65% share, helps to leverage the two companies’ media platforms and content to improve services for consumers and advertisers.
• With additional advertisers moving away from print, the segment revenue is expected to improve further in the near term.

To understand how the two other segments – Books Publishing and Digital Real Estate Services – which together account for almost 30% of total revenues, are performing, you can refer to the Trefis analysis- News Corp Revenues: How Does News Corp Make Money?

Total Revenue Performance

• NWSA added over $2 billion to its revenue base from 2017 and 2019, led by sharp growth in the Subscription Video Services and Digital Real Estate Services segments.
• Inorganic growth strategies, such as important business combinations – Foxtel and FOX Sports – along with key acquisitions – Smartline, Hometrack, and Opcity – has led to healthy revenue growth in recent years.
• However, revenue is expected to increase by 0.5% to $10.1 billion in 2020 and further by 0.6% to $10.2 billion in 2021, as the acquisition benefits have already been realized.
• Near term revenue growth is expected to be driven by subscription and real estate divisions, due to increased advertising on the digital platforms and changing consumer preferences, partially offset by lower print advertising revenue and book sales.

To understand how News Corp’s revenue growth trend compares with its peers, view our interactive dashboard.

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