News Corp Makes Hay While Ad Market Recovers

News Corp (NASDAQ:NWS) recently released its Q2 fiscal 2012 results. The key takeaway from the earnings was that the advertising growth exists across cable networks and broadcasting network and the economy showing signs of a stronger pulse given positive earnings announcements, we can expect News Corp’s business to perform well. Additionally, the news publishing business saw a significant decline which was partially a result of shut down of The News of the World in the U.K. Going forward, we expect that improvement in advertising market and online shift to compensate for print declines. Additionally, the negative impact of phone hacking scandal on News Corp’s stock has already been moderated and continued share buyback will help lift the stock.

Our price estimate for News Corp stands at $23.10, implying more than 15% premium to the current market price.

See our complete analysis for News Corp

The advertising market is recovering and NWS posted revenue growth from domestic cable channels of 6%. ^[1] Additionally, the revenue for Fox Broadcasting, which primarily depends on advertisement, grew by 11% as a result of higher ratings and improved ad pricing. ^[1] We estimate that Fox broadcasting constitutes about little over than 10% to News Corp’s business and cable networks contribute 40%, about one-fourth of which can be attributed to advertisement. Thus, cable and broadcasting advertising business constitutes about 20% to News Corp’s value. Going into 2012, we could see better ad pricing that can help the company sustain its growth.

The growth in re-transmission fees and content licensing deals with companies such as Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN) is also helping out. The company earned about $200 million in last 2 quarters through such content licensing deals. ^[2] This is a common story across media companies who are trying to maximize their profits by improving the monetization of their content. This also makes revenue stream more stable by moderating the impact of fluctuations in advertising market.

We are in process of updating our pricing model for News Corp and will have an updated model soon.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. News Corp’s Q2 Fiscal 2012 10-Q Filing [↩] [↩]
2. Film, Cable-TV Boost News Corp. Earnings, The Wall Street Journal, Feb 9 2012 [↩]