Here’s Why Digital Real Estate Is News Corp’s Most Valuable Business
News Corp (NASDAQ:NWSA) is primarily known for its News and Information segment, which includes the Wall Street Journal, and is responsible for more than half of News Corp’s revenue. However, this segment has been witnessing declines due to a fall in print circulation numbers and a shrinking print ad market, driven by the emergence of digital media. As a result, News Corp has diversified into various businesses, Digital Real Estate Services being one of them. In fact, we estimate that Digital Real Estate accounts for around 35% of the company’s value, which is especially notable since the segment only accounts for 11% of total revenues.
News Corp’s Digital Real Estate business generates revenue by selling online advertising services on its residential real estate and commercial property sites. The segment includes its 80% interest in Move Inc., which operates the widely used realtor.com in the U.S. News Corp aims to capitalize on the growing online real estate sector with Move’s content advantage.
According to our estimates, Digital Real Estate contributes 29% of the total company EBITDA. In fact, the Digital Real Estate segment’s margins are around three times those of the company’s other segments, due to the relatively low-cost nature of the business.
What is Driving The Division’s Impressive Growth
News Corp’s Digital Real Estate segment has grown in importance for the company, increasing from 4% of revenues in 2010 to 10% in 2016. Given the company’s focus on the segment, we expect its contribution to total revenues to further increase to 14% by the end of our forecast period, largely driven by demand for digital real estate services from millennials, who account for an increasingly large proportion of home sales (34% in 2016). Many younger people prefer searching the internet for real estate, which presents a massive opportunity for News Corp given the recent home buyer demographics shown below.
Going forward, we expect Digital Real Estate Services revenue to grow at compounded annual growth rate (CAGR) of nearly 5% through 2022, driven by rapid growth in the online real estate market and changing demographics in the U.S. News Corp is gradually diversifying its business due to secular headwinds, becoming more reliant on its digital real estate business for growth.
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