What Is Driving The Growth In News Corp’s Digital Real Estate Business?
Digital Real Estate is News Corp‘s (NASDAQ:NWSA) fastest growing segment. The segment contributes 44% of the total company EBITDA, which is almost four times those of the company’s other segments individually. This is largely due to the relatively low-cost nature of the business. Digital Real Estate accounts for around 45% of the company’s value, per our estimates, which is especially notable since the segment only accounts for 14% of its total revenues. News Corp is primarily known for its News and Information segment, which includes the Wall Street Journal, and is responsible for more than half of the company’s revenues. However, this segment has been witnessing declines due to a fall in print circulation numbers and a shrinking print advertising market, driven by the emergence of digital media. Consequently, the media company has diversified into various businesses, Digital Real Estate Services being one of them.
Our $17 price estimate for News Corp’s stock is around 30% ahead of the current market price. We have created an interactive dashboard on key sources of revenues for News Corp, which outline our forecasts for the company’s full-year 2018 results. You can modify our forecasts to see the impact any changes would have on the company’s earnings and valuation.
Solid Growth Numbers
The Digital Real Estate business generates revenue by selling online advertising services on its residential real estate and commercial property sites. The segment includes a 61.6% interest in the REA Group (operates across Australia and Asia) and an 80% interest in Move Inc. (operates realtor.com in the U.S.) The company aims to capitalize on the growing online real estate sector with Move’s content advantage. Further, we expect Digital Real Estate revenue to grow at a compounded annual growth rate (CAGR) of nearly 10% 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.
News Corp’s Digital Real Estate segment has grown in importance for the company, increasing from 4% of revenues in 2010 to 11% in 2017 (and slightly higher so far this year). Given the company’s focus on the segment, we expect its contribution to total revenues to further increase to 19% by the end of our forecast period. Our estimate is largely driven by demand for digital real estate services from millennials, who account for an increasingly large proportion of home sales (34% in 2017). Many younger people prefer searching the internet for real estate, which presents a massive opportunity for News Corp.
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