Real Estate, Digital Platform To Shape The Future For News Corp

Multinational mass media company News Corp (NASDAQ:NWSA) reported first quarter fiscal 2016 earnings that came in below expectations, as total revenues declined 4% year on year (y-o-y) to $2 billion. However, the company is on track in its transition to a higher-growth business that is more reliant on digital platforms. The expansion of the digital real estate operations, with acquisitions such as realtor.com, should be a strong source of growth for the company. In the bigger picture, News Corp is trying to incorporate its traditional revenue sources into the contemporary business environment.

Although a weaker Australian dollar subdued the company’s revenues, its organic growth was solid. Excluding foreign currency translation effects, News Corp’s revenues increased by 4% y-o-y. ^[1] The Digital Real Estate Service sector saw 71% top line growth, though that includes revenue realized through the acquisition of Move Inc. in November 2014. Book publishing saw only moderate growth as e-book sales slowed down, while News and Information Services continued to decline, in line with the secular shift away from print.

Our current prices estimate for News Corp stands at $18, which is about 20% above the current market price.

See our complete analysis for News Corporation

Digital Real Estate Sector’s Future Looks Sunny

The inclusion of Move’s results, greater residential listing depth, product penetration and improved listing volumes helped bolster revenues for the Digital Real Estate Service business, partially offset by negative foreign currency fluctuations. News Corp has been expanding its business globally as a means to offset declining advertising revenue from its newspapers. Recently, REA Group (owned by a subsidiary of News Corp) launched a $750 million takeover bid for Southeast Asia-focused rival iProperty. The company is confident about the outlook for this sector, especially as the U.S.’s real estate market has seen some improvement.

News And Information Services Continue To Fall

The shift away from print, along with currency headwinds, led to an 11% y-o-y decline in revenues from the News and Information Service segment, which is the biggest contributor to News Corp’s revenues at 67%. Weakness in the print advertising market, particularly in Australia, drove advertising revenues down 13%, even as Dow Jones and The Wall Street Journal – two of the company’s marquee brands – showed modest growth in print and digital advertising revenues. The subscription revenue decline of 6% was partly offset by higher subscription pricing and cover price increases. Going forward, the company is focusing on making its digital platform one of its growth drivers, and has been making acquisitions to that end.

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1. Earning Transcript for Q1 FY16, News Corp., November 2015 [↩]