Key Takeaways From News Corp’s Fiscal Q2 Earnings

News Corp (NASDAQ:NWSA) reported better-than-expected second quarter results, as both its revenue and earnings per share were in line with market expectations. In Q2, the company’s revenues decreased 2% year-over-year (y-o-y) to $2 billion, primarily due to the impact of foreign currency fluctuations and declines in advertising revenues in the News and Information Services segment. In addition, the company’s total adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was 14% higher compared to the prior year, driven by continued growth in the Digital Real Estate Services and Book Publishing segments, partially offset by lower programming rights costs at the Cable Network Programming segment. The Digital Real Estate (16%) segment posted strong growth on the back of higher revenues at both REA Group and Move in the second quarter. The media company also posted negative earnings of 19 cents per share, down 5% y-o-y.

Digital Real Estate – The Engine Of Growth

In the second quarter, the total segment revenues increased 16% y-o-y to $242 million and segment’s EBITDA also grew 30% y-0-y to $95 million due to strong contribution of both REA Group and Move.

At REA, revenues grew 90% y-o-y due to an increase in Australian residential depth revenue, benefiting from favorable product mix and higher prices coupled with a modest revenue contribution from iProperty. This was partially offset by the impact from lower listing volumes.

Continued Headwinds In News And Information Services

The News and Information Services segment continued its downtrend and witnessed a 7% y-o-y decline in its revenues in the second quarter. The revenue decline was mainly due to lower advertising revenues resulting from weakness in the print advertising market and a negative impact from foreign currency fluctuations. The segment’s circulation and subscription revenues decreased 5% y-o-y, again as a result of a negative impact from foreign currency fluctuations. Moreover, the segment’s EBITDA declined 10% y-o-y, driven by lower print advertising revenues, partially offset by cost saving initiatives and higher profit contribution at News America Marketing and at News UK versus the prior year.

Book Publishing Revenues Could Boost In Near Term

In Book Publishing, HarperCollins reported a 4% y-o-y in revenues for the second quarter, which was largely due to he continued success of backlist titles along with growth in strong frontlist titles, including The Magnolia Story by Chip and Joanna Gaines, Patricia Cornwell’s Chaos and The Midnight Gang by David Walliams.

In the second quarter, the segment’s total digital revenues, which include audiobooks, accounted for approximately 16% of consumer revenues with digital sales rising modestly over the prior year quarter for the first time in two years, driven principally by audio books. Also, the segment’s EBITDA improved by 32% versus the prior year, driven by higher revenues and the mix benefit from the higher margin backlist titles.

Cable Network Programming Performs Moderately

In the second quarter, the Cable Network segment’s revenue fell 2% y-o-y to $104 million due to lower subscription and advertising revenues partially impacted by the absence of the Rugby World Cup in the prior year. However, its segment EBITDA increased by 31% y-o-y, driven by the absence of programming rights costs related to the Rugby World Cup and the English Premier League.

Guidance

In Digital Real Estate Services, the company expects an increase in EBITDA contribution and improved revenues at realtor.com combined with continued growth at REA in the third quarter. For the Book Publishing segment, the company expects to reap benefits from a strong release slate, including Veronica Roth’s Carve the Mark. Also, the company expects its rights costs to go down modestly in local currency, given the absence of EPL rights, in the Cable Network Programming segment. Reuters’ compiled analyst estimates forecast revenues of $1.90 billion and earnings per share of $0.05 in Q3 2017.

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