Key Takeaways From News Corp’s Q3
News Corp (NASDAQ: NWSA) reported better-than-expected fiscal third quarter results, as its revenue came in ahead of market expectations and EPS was in line. In Q3, the company’s revenues grew 6% year-over-year (y-o-y) to $2.1 billion, primarily due to continued growth in the Digital Real Estate business and broad growth in other segments as well. However, the company’s total earnings before interest, taxes, depreciation, and amortization (EBITDA) declined 15% y-o-y. The media company reported a loss per share of $1.94 compared to a loss of $1 in the prior year. The loss was primarily driven by the pretax non-cash write-downs of $998 million related to Foxtel and Fox Sports Australia consolidation. The company’s adjusted earnings per share declined 13% y-o-y to $0.06.
News Corp plans to consolidate Foxtel and Fox Sports Australia (including Sky News), which will be reflected in the newly formed revenue segment – subscription video services. This consolidation will make circulation and subscription revenues the biggest revenue stream for News Corp for the first time, guarding the company against the volatile advertising market.
We have created an Interactive Dashboard which outlines our forecasts for the company and our expectations for its FY 2018 results. You can modify our forecasts to see the impact any changes would have on the company’s earnings and valuation.
Digital Real Estate – The Engine Of Growth
In Q3, Digital Real Estate segment revenues increased 27% y-o-y to $279 million, and the segment’s EBITDA further grew 17% y-0-y to $88 million, largely due to continued growth at REA Group and Move. At REA, revenues grew 35% y-o-y due to an increase in Australian residential depth revenue, benefiting from favorable product mix and higher prices, and also in part by emerging financial services business. At Move, revenues grew 15% y-o-y overall, a healthy 19% y-o-y coming from its core real estate business. It should also be noted that the average monthly unique users at realtor.com were approximately 61 million for the quarter, rising 10% versus the prior year.
News And Information Services Grew In Q3
The News and Information Services segment revenues grew 2% y-o-y in the second quarter, largely due to higher revenues at Dow Jones, News UK, and a positive impact from foreign currency fluctuations, partially offset by lower revenues at News America Marketing and News Australia. Within segment revenues, advertising revenues were down 3% y-o-y and circulation and subscription revenues increased 7% y-o-y. In addition, the segment’s EBITDA fell 31% y-o-y to $85 million.
Solid Growth In Book Publishing
In Q3, this segment’s revenues grew 6% y-o-y to $400 million and segment EBITDA increased 16% to $43 million, driven by the continued performance of The Woman in the Window and strong performances from the backlist. Results from General books and Christian publishing drove overall performance in this quarter.
Future Outlook
In the upcoming quarter, the combination of the digital real estate services and cable TV businesses is expected to account for significantly more than half of News Corp profits. The company also expects continued strong revenue growth at REA, which could show some improvement in listing volumes at Digital Real Estate Services.
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