News Corp Benefits as Higher Demand For E-books And Harlequin Acquisition Will Drive Growth
News Corp‘s (NASDAQ:NWSA) book publishing operations have been trending well over the past few years. The segment revenues have grown at a steady pace and account for more than 15% of the company’s overall revenues. However, the margins are lower and stood at 7% in 2013, according to our estimates. Earlier in August 2014, the company acquired Harlequin from Torstar Corporation for around $390 million. The acquisition has strengthened News Corp’s book publishing unit and the segment revenues jumped 24% while EBITDA grew 28% in the September quarter. [1] We believe that the book publishing segment will continue to see growth in the coming years primarily driven by Harlequin and growth in e-books sales.
We estimate revenues of around $8.77 billion for News Corp in calendar year 2014, with EPS of $0.53. We currently have a $18 price estimate for News Corp, which is around 20% ahead of the current market price.
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How Is Harper-Collins Trending For News Corp?
News Corp’s Book Publishing segment consists of HarperCollins Publishers, one of the largest English-language consumer publishers in the world, based on global revenue, with operations in the U.S., the U.K., Canada, Australia, New Zealand and India. HarperCollins publishes and distributes consumer books globally through print, digital and audio formats. Its active print and digital global catalog includes over 50,000 publications and approximately 100,000 SKUs, including various print and digital editions of the same title. Additionally, in the U.K., HarperCollins publishes titles for the equivalent of the K-12 educational market.
News Corp’s book publishing revenues have increased from $1.14 billion in 2007 to $1.38 billion in 2013. The segment revenues have been trending well in 2014, as the company benefited from high demand for Veronica Roth’s Divergent series. During the September quarter alone, News Corp sold 3.5 million units of the Divergent series. Moreover, the recent acquisition of Harlequin is aiding the top line as well as the bottom line of the company, as was evident from September quarter earnings. Also, the company is seeing high growth in e-book sales and it now accounts for over 20% of overall consumer revenues for the company. [2] It must be noted that digital books have lower production and distribution costs than print books and this will help the company see continued growth in the long run. In the first half of 2014, e-book sales in the U.S. made up 23% of unit sales while hardcover’s accounted for 25% and paperbacks 42% of sales. While the growth rate of e-book sales has slowed in the recent years, there is a healthy market for both, print as well as digital edition of books. [3]
News Corp is associated with popular authors such as Mitch Albom, Veronica Roth and Rick Warren and offers a number of well known popular titles, including The Hobbit, Goodnight Moon, To Kill a Mockingbird and the Divergent series. The company was quick to move to a digital platform and provides more than 35,000 e-book titles across devices such as Amazon Kindle and Apple’s iBook. The growth in digital book sales will boost the segment margins in the coming years due to the lower costs associated with digital publishing. We currently estimate segment revenues of $1.59 billion for the calendar year 2015 and an estimated EBITDA margin of around 10.6% will translate into EBITDA of $168 million, representing 16% of the company’s overall EBITDA in 2015. In the long run, we estimate the segment revenues to be north of $2 billion and EBITDA of over $250 million by end of the decade.
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- News Corp’s SEC Filings [↩]
- News’ (NWSA) CEO Robert Thomson on Q1 2015 Results – Earnings Call Transcript, Seeking Alpha, Nov 5, 2014 [↩]
- Print Continues to Outsell Digital During First Half of 2014, Publishing Perspectives, Oct 15, 2014 [↩]