News Corp Q1 2017 Earnings Preview: What To Expect?
News Corp (NASDAQ:NWSA) is scheduled to announce its first quarter fiscal 2017 results on Monday, November 7. The company saw mixed results in the fiscal fourth quarter, with revenues making a surprising gain and beat, but profits missing on a per-share basis. Its EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) gained in all segments except News and Information Services, where it fell 5% year-over-year (y-0-y). The Digital Real Estate segment witnessed 21% y-o-y revenue growth in the fourth quarter, further illustrating the key role of the segment in News Corp’s value. Moreover, HarperCollins showed an upturn, with its revenues rising 11% y-o-y and its segment EBITDA surging 52% y-0-y, driven by new releases and cost initiatives.
In fiscal 2016, News Corp’s revenues declined 3% to $8.2 billion. While the Digital Real Estate witnessed revenue growth, all other divisions, including book publishing, cable networks, and news and information, saw revenue declines. We expect this trend to continue in the near term, and accordingly expect the company to post lower overall sales during the first quarter. Reuters’ compiled analyst estimates forecast revenues of $1.96 billion in Q1 2017.
Digital Real Estate – Important Growth Driver
The company’s digital real estate business has been trending well over the past few years. The business stems from its 61.6% ownership of REA Group, which is a digital advertising business specializing in real estate services. It offers digital advertising solutions to help real estate agents sell or rent properties and win new listings. The company generates revenues from advertising. We expect continued growth in the business, owing to the ongoing growth of REA and Realtor.com in the U.S. However, at REA, listing volumes in July were negatively impacted by uncertainty surrounding the election and could slightly impact the Digital Real Estate revenue in the fiscal first quarter.
News And Information Services To Continue The Downward Trend
News And Information Services is an important segment for News Corp as it accounts for more than 50% of the company’s value, according to our estimates. However, the environment for the print industry in particular is challenging, primarily due to continued secular pressure. This weakness along with factors such as foreign currency headwinds and soft advertising demand could slow down the revenues from this segment in the first quarter.
In fiscal 2017, News Corp plans to invest in Checkout 51 (an app that helps consumers save money and generate huge data leveraged across News Corp business), with a goal to reach 10 million users by the end of year. The company also has a range of books lined up for release, including Megyn Kelly’s Settle for More, the highly anticipated Veronica Roth release and Jesus Always by Sarah Young. Also Foxtel (the largest pay-TV provider in Australia) which has more than 2.9 million total subscribers, expects to increase its subscriber base further by improving its content offering. It plans to do this through the acquisition of Australian Football League (AFL) rights through 2022, a new agreement with top English Premier League clubs for broadcast rights and a greater emphasis on the Foxtel Go mobile product. News Corp owns a 50% stake in Foxtel.
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