A lot of media companies have gone into the tank over the past few years, thanks to the rise of digital publishing and streaming.
But News Corp. (NASDAQ: NWSA), controlled by the Murdoch family, isn’t one of them.
The publisher of The Wall Street Journal and The Times of London has generated an annualized total return of 19% over the past three years, not far from the S&P 500’s 20% return. Obviously that’s not a spectacular performance, but it’s a lot better than many media companies.
“News Corp. is better placed than peers in the publishing industry to transition its print business to the digital age,” wrote Morningstar analyst Brian Han. “It has some of the most venerable masthead brands in the industry (The Wall Street Journal and The Times). And it boasts significant editorial resources, especially compared with those of its rivals, which have been dwindling.”
In the quarter ended Dec. 31, News Corp. posted a 6% increase in revenue from a year earlier and a 9% gain in earnings before interest, taxes, depreciation and amortization.
The company’s Dow Jones division, which includes The Journal and Barron’s, helped lead the way, with an 8% increase in revenue. Digital Real Estate Services, which include Realtor.com, scored the same number.
Strong numbers for Wall Street Journal
Dow Jones, News Corp.’s biggest revenue division, accounts for 27% of the company’s revenue. Dow Jones’ flagship, The Journal, enjoyed an 11% increase in subscriptions in the latest quarter from a year earlier.
That’s not surprising, given that it’s one of the world’s top-quality newspapers. Digital-only subscriptions rose 12% and account for 92% of total Journal subscriptions. So clearly, The Journal is adjusting well to the digital age.
To be sure, there may be cracks beneath the surface. News Corp. bought several publications over the past few years at “glitzy multiples,” Han said. “Consequently, Dow Jones’ return on capital in recent years is not impressive. … Its return on capital is unlikely to durably exceed the cost of capital.”
News Corp.’s second biggest unit is Book Publishing, which makes up 26% of revenue. Its crown jewel is Harper Collins. Revenue for the division increased 6% in the Dec. 31 quarter. Key titles included “Wicked: The Official Visual Companion” by Gregory Maguire and “How to
Test Negative for Stupid” by John Kennedy.
Still, Book publishing is “a tough industry, with Harper Collins and other News Corp. publishing stables competing with a variety of other players,” Han said. The Covid epidemic and audio books have helped juice sales for the industry.
“However, book sales are still subject to fickle tastes and structural uncertainties, with digital entertainment alternatives aplenty and monetization on audio streaming platforms still in flux,” he said.
Media, real estate divisions
The News Media division produces 25% of News Corp.’s revenue. It includes The Times, the New York Post and papers in Australia. Revenue was flat in the latest quarter. News Corp. is working diligently to convert its papers to digital.
But “competition for audiences and advertisers online is even more aggressive” than in print, Han said. The explosion of social media platforms makes things especially difficult, as they’re enjoying a rapid deflation in production costs, he said.
Digital Real Estate Services is the company’s fourth biggest subsidiary, at 22% of revenue. It’s made up of online real estate brokerage platforms. Revenue climbed 8% in the latest quarter. The U.S. residential property listings space is “fiercely competitive,” making this market a difficult one for News Corp., Han said.
As for artificial intelligence, it’s difficult to tell whether that will help or hurt the company.
In any case, perhaps News Corp. can overcome the problems Han cites, at least for the short term. “Given the current trajectory of our core drivers, we believe prospects for the quarter [ended March 31] are auspicious,” CEO Robert Thomson said Feb.5.
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