News Corp Broadcasting Margins Improve, Supporting $23 Stock Value

News Corp (NASDAQ:NWS) competes with other media and broadcasting companies like Time Warner (NYSE:TWX), Viacom (NYSE:VIA), CBS (NYSE:CBS), New York Times (NYSE:NYT) and Disney (NYSE:DIS) in the media and entertainment business. Our price estimate for News Corp. stands at just over $23.

The company recently released its Q2 fiscal year 2011 earnings and several positive trends were noticeable including improvements in the cable networks and broadcasting businesses as well as an improvement in Sky Italia’s subscriber additions. One of the significant changes for 2010 overall has been improvements in broadcasting profit margins (EBITDA). The margins have improved from a little over 3% in 2009 to about 12% in 2010 by our estimates.

Significance of Broadcasting to News Corp & Improvements

We estimate that the broadcasting business constitutes about almost 11% to News Corp’s stock. The revenues have shown an improvement in recent quarters and this was a result of continued strength in the local advertisement market, which was driven by improvements in advertising from automotive and financial sector and increased political advertising.

Additionally, increased ad revenue from NFL (National Football League) games and other entertainment related programming helped. The broadcasting business depends on advertising and thus an improvement in the ad market has direct impacts on margins. With the economy recovering, ad pricing is likely to see a lift across all broadcasters.

The U.S. TV advertising market is showing improvements not just for broadcasters but for cable TV networks as well. Viacom’s ad revenue growth has been healthy for past few quarters, and the company stated in Dec 2010 that big companies like wireless service providers, tech product manufacturers and automakers are showing interest in putting ads on cable networks. ^[1] Credit Suisse as reported by Barron’s issued a report recently that suggests the same ^[2]

We believe that this is a result of a general improvement in the overall advertising market as larger companies regain sufficient advertising budgets to target a broader range of audiences.

However if you feel differently, please share your feedback in the comment box below.

See the complete Trefis price estimate for News Corp’s stock.

1. Reuters Summit-Viacom CEO sees ad market improving, Reuters, Dec 2 2010 [↩]
2. Cable TV Ads Make a Strong Showing, Barron’s, Dec 14 2010 [↩]