A Scenario That Can Add To News Corp’s Value
The recent wave of acquisitions by News Corp (NASDAQ:NWSA) has made it certain that the way forward for the company is its digital real estate business, which accounts for a third of its value, as per our estimates. Acquisitions such as Unruly, Checkout51, Storyful, Move Inc, have been aimed at creating growth opportunities for the digital real estate segment. Currently, we project the segment’s revenues to grow at a CAGR of 7.10% through to 2022, driven by newly acquired advertising expertise and expected population growth in Australia.
However, with the transition from print to digital, publishing, News Corp is striving hard to integrate its different vertical busineses together to grow seamlessly overall. If growth in this segment turns out better than expected, due to the full realization of synergies from various acquisitions, and revenues grow at a CAGR of approximately 15% instead, there can be about 15% upside to our price estimate for the company. In the section below, we discuss the aforementioned scenario in detail.
Our price estimate of News Corp at $18, is almost 30% above the market price.
See our complete analysis for News Corporation
Base Case Scenario: Growth In Digital Real Estate
News Corp derives its revenue from four segments: 1) digital real estate services; 2) news and information services; 3) cable network programming; and 4) book publishing. The global trend away from print publishing is changing the face of media companies all over, and News Corp is no exception. The news and information segment, which has traditionally been the highest revenue generator for the company, has been shrinking for the past few years. News Corp is proactively looking to adapt to these changes by integrating all its verticals digitally. The nascent digital real estate business is a valid example on this front. Through various transactions, the company has added new features to its portfolio such as measuring the social and viral penetration of advertising campaigns and gathering real-time information about consumers’ buying choices. [1] Considering the aforementioned additions and expected increases in Australia’s population and real estate demand, we project digital real estate revenues to grow at CAGR of over 7% over the next six-seven years.
Accelerated Growth Can Add Value
The assets that News Corp has added in the form of Unruly, Checkout 51, Storyful can help it accelerate growth in this division. Also, the company has about 60% ownership in REA Group and 80% in Move Inc. REA Group operates Australia’s leading residential and commercial property websites, realestate.com.au and realcommercial.com.au. Together, the two websites have approximately 26.1 million main site visits and 11.6 million mobile site visits every month, based on Nielsen monthly total traffic ratings for the year ended June 30, 2015. Move Inc, which the company acquired in November 2014, is a leading provider of online real estate services in the U.S. It primarily operates realtor.com, a premier real estate information and services marketplace, where consumers have access to over 3.3 million properties across the U.S. [2] Through this platform, News Corp is able to attract a highly engaged consumer audience as the listing data provided by it is more comprehensive, current and accurate than its competitors.
Moreover, the company is planning to expand its geographical footprint and enter newer high growth regions. Consistent with this goal, it intends to acquire iProperty, which has a strong presence in Southeast Asia. We believe that if all these acquisitions are successfully realized, the annual revenue inflow from the segment can to go up as much as $1.6 billion over the next six-seven years, as opposed to our current forecast of $1 billion. This can result in a potential upside of close to 15% to our price estimate for News Corp. Moreover, the expected increase in Australian population (where REA Group actively operates) can lead to higher demand for houses, which can bolster real estate listings and advertisement space on the company website. ((Population in Australia, Australia Bureau of Statistics, March 2015))
Potential Risks
While the outlook majorly looks good, there are a few concerns associated with this sector. Similar to all digitally active businesses, the digital real estate segment too faces intense competition from websites like domain.com.au, reiwa.com.au, suburbview.com and homehound.com.au, zillow.com and trulia.com. [2] If these players establish a stronger foothold than REA Group and Move Inc., it can have a negative impact on the segment’s growth. In a scenario where instead of $1.6 billion, digital real estate revenues increase to only $1.2 billion, the upside would be limited to just 5%.
Moreover, it is imperative that the synergies from all the acquisitions are realized if News Corp intends to accelerate growth in the digital arena. As consumers are increasingly turning to the Internet and mobile devices for real estate information, it becomes crucial for the company to continually innovate and provide products and services that make its websites and mobile applications useful for consumers and real estate and mortgage professionals, and attractive to advertisers. News Corp also mentions that it may fall behind if for some unforeseeable reason it loses the benefits of its relationship with National Association of Realtors (NAR), which allows it to have a trademark on realtor.com.
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- News (NWSA) Q1 2016 Results – Earnings Call Transcript, Seeking Alpha, November 2015 [↩]
- Annual Report- News Corp 2015, SEC, August 2015 [↩] [↩]