Digital Real Estate Services Will Drive Growth For News Corp In Fiscal 2019
News Corp (NASDAQ: NWSA) is scheduled to announce its fiscal first quarter results on Wednesday, November 7. The company reported solid fiscal 2018 results, as both its revenue and earnings per share came in ahead of market expectations. In fiscal 2018, the company’s revenues grew 11% year-over-year (y-o-y) to $9 billion, primarily due to continued growth in the Digital Real Estate business and broad growth in other segments as well. News Corp consolidated Foxtel and Fox Sports Australia (including Sky News), resulting in a 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. In addition, the company’s total earnings before interest, taxes, depreciation, and amortization (EBITDA) grew more than 20% y-o-y. However, the media company also posted a net loss of $1.5 billion as reported, accounting for a non-cash write-down of $957 million from the combination of Foxtel and Fox Sports Australia.
Our $17 price estimate for News Corp’s stock is almost 30% ahead of the current market price. We have created an interactive dashboard on What To Expect From News Corp’s Fiscal 2019 Earnings which outline our forecasts for the company’s full-year fiscal 2019 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
Digital Real Estate is News Corp’s 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 about 14% of its total revenues.
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.
Future Outlook
The combination of the Digital Real Estate Services and Subscription Video Services segments is expected to account for significantly more than half of News Corp profits. At News and Information Services, while pre-advertising trends continue downwards, they have been relatively stable, though visibility remains limited. As a consequence, the company is focused on driving higher penetration of digital paid subscriptions, particularly in Australia and at News UK in fiscal 2019. At Subscription Video Services, the company will focus on launching new OTT products, 4K, the next generation of the IQ Box and managing its broadcast base. In Book Publishing, underlying trends seem relatively stable and the company will be focused on its foreign language penetration. Some of HarperCollins’ next fiscal releases include the recent release of The Other Woman and Home Body.
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