News Corp Q3 Earnings Preview: Watch For Trends In News And Information Service, Book Publishing
News Corporation (NASDAQ:NWSA) will report its fiscal Q3 2014 earnings on May 8. The company came into independent operations last year after the split with 21st Century Fox (NASDAQ:FOX). Accordingly, company results as reported in the 10K and 10Qs released since the split, highly illuminating themselves, are not comparable to the prior filings for the combined entity.
The publishing business has suffered significant losses in the past few years primarily due to the writedown of assets. The cash flows are still positive, but the challenge is to counter the secular decline in the publishing industry and revive sales. However, if we look at the previous quarter, comparable EBITDA grew by 9% year over year to $327 million due to better cost management. [1]
News And Information Services division has seen declines in revenues in the recent past primarily due to the Australian operations, which remain challenging for the company. Cable Networks, which primarily includes Fox Sports Australia, did well in the previous quarter with 9% revenue growth and 34% jump in EBITDA (comparable figures). [1] It appears Cable Networks will continue to do well in the fiscal third quarter primarily due to its sports programming, which always has good demand. It will be interesting to see if News Corporation can again deliver good results on the back of an effective cost management.
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Watch For Trends In News And Information Service And Book Publishing
The News and Information Services segment consists of products and services targeting consumer and enterprise customers, and includes global product offerings such as The Wall Street Journal and Barron’s Publications. The segment derives its revenues primarily from three sources, advertising, circulation and subscription, and other revenues. The advertising revenues declined by 10% while circulation and subscription revenues declined by 7% in the previous quarter. Segment EBITDA also declined 13% to $255 million, primarily due to the continued weakness in Australia and Dow Jones institutional business. [2]
News And Information Service is an important segment for News Corporation. It accounts for more than 40% of the company’s value, according to our estimates. The environment for print industry in particular is challenging. As Internet penetration continues to expand, users increasingly get access to free and abundant information online. This continuing trend could keep putting a downward pressure on circulation prices. However, some of News Corporation’s brands including The Wall Street Journal are considered to be one of the best mediums to reach business decision makers and affluent consumers. An affluent readership base implies a lucrative audience for advertisers. We are eager to see how this segment trends in the near future given the current landscape of the print industry.
As far as book publishing is concerned, it appears to be going on the right track. In the previous quarter, segment revenues were up 4% while EBITDA jumped 33% as compared to the prior year period, reflecting the benefits of Divergent series by Veronica Roth. E-book sales grew nearly 40% versus the prior year and accounted for 17% of total sales, up from 14% in the prior year period. [1] This is important for News Corporation given the pace of digitization. If the ratio of e-book sales to print continues to grow, the company can look forward to a more stable growth outlook in the book publishing segment.
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