30% Gains Left For News Corp Stock?

[Updated: 08/24/21] News Corp Stock Update

News Corp (NASDAQ: NWSA) recently reported its Q2 report, wherein revenues were above our estimates but earnings per share came in below. The company reported revenues of $2.49 billion, 11% above the consensus estimate of $2.2 billion and 8% higher than our forecast of $2.3 billion. The company’s earnings per share came in at a loss of $0.02, well below the $0.03 consensus and $0.04 per Trefis estimates. News Corp’s revenues jumped 30% year-over-year (y-o-y) on the back of growth in all operating segments. In fact, Q4 revenues were up 30% since the second quarter of fiscal 2019 when it still owned News America Marketing. In addition, the media company’s total EBITDA was $210 million, up 8% versus the prior year, including record-high segment EBITDA at Digital Real Estate Services. However, NWSA stock has dropped 11% following the mixed Q4 report.

We have updated our model following the Q4 release. We now forecast sales to be $9.3 billion for the full year 2021, almost flat y-o-y. Looking at the bottom line, we now estimate EPS to come in at 55 cents, compared to our earlier estimate of 52 cents. News Corp has proposed to acquire Oil Price Information Service (OPIS), a leading end-to-end pricing and analytics provider for the energy industry, for $1.15 billion in an all-cash deal funded through existing cash reserves. After a ~$1 billion debt issuance since April 2021, News Corp has now utilized around $2 billion in cash across four acquisitions, bringing in – OPIS, Investor’s Business Daily (IBD) (both helping to expand the Dow Jones business), Mortgage Choice (via REA), and the Books and Media segment of HMH (Houghton Mifflin Harcourt) into its fold. While we expect the fiscal first half of 2022 to be impacted by the ongoing Covid-19 lockdowns, particularly in Australia, and modest growth in the News Media segment, the growth trends seem to be encouraging in the Digital Real Estate and Dow Jones segment. Given the changes to our revenues and earnings forecast, we have revised our News Corp Valuation at $30 per share, based on $11.69 expected revenue per share (RPS) and a 2.6x P/S multiple for fiscal 2022 (year ending June 2022) – 34% higher than the current market price.

[Updated: 08/04/21] News Corp Q2 Pre-Earnings

News Corp (NASDAQ: NWSA), a global, diversified media and information services company, is scheduled to report its fiscal fourth-quarter results on Thursday, August 5. We expect NWSA to likely beat the revenue and earnings expectations, driven by the positive momentum of Digital Real Estate Services, Book Publishing, and Dow Jones. Collectively, these segments generated EBITDA growth of close to 55% of the total company in fiscal Q3. At Dow Jones, overall advertising, which was slightly down in Q2, moved into positive terrain in Q3, with digital advertising 30% higher in the quarter, almost double the growth rate of the New York Times. Digital now represents 61% of all advertising compared to a ratio of 48% in the prior year. Going forward, we expect the company to benefit from the growth momentum and show sequentially improving sales and profit trends in all three segments (except News Media) in the upcoming Q4 as well.

Our forecast indicates that NWSA’s valuation is $27 per share, which is 10% higher than the current market price of $25. Look at our interactive dashboard analysis on NWSA’s pre-earnings: What To Expect in Q4? for more details.

(1) Revenues to be slightly ahead of consensus estimates

Trefis estimates NWSA’s Q4 2021 revenues to be around $2.3 Bil, 5% ahead of the consensus estimate of $2.2 Bil. The company reported Q3 fiscal 2021 total revenues of $2.34 billion, 3% higher year-over-year, while total segment EBITDA was $298 million, up 23% y-o-y, reflecting an 8% positive impact from foreign currency fluctuations as well as growth in the Digital Real Estate Services, Book Publishing, and Dow Jones segments. However, it should be noted that the company saw lower revenues in the News Media segment, primarily driven by a negative impact of $199 million (9%) from the divestiture of News America Marketing as well as weakness in the print advertising market. Moreover, negative impacts worth $28 million triggered by the closure or digital transitioning of certain regional and community newspapers in Australia, also put pressure on the top line.

News Corp was on an acquisition spree in late March, bringing Investor’s Business Daily (IBD, which operates the Investors.com website) and the  The profitable, high margin and rapidly growing digital-first financial news business of IBD will expand Dow Jones’ offering. In fact, IBD’s revenue base is almost entirely digital, representing nearly 100,000 digital subscribers across its platforms, with little overlap to Dow Jones’s existing subscriber base. It should be noted that Dow Jones is home to The Wall Street Journal, MarketWatch, and Barron’s, among other publications, products, and news sites.

2) EPS expected to be well ahead of consensus estimates

NWSA’s Q4 2021 earnings per share (EPS) is expected to be $0.04 per Trefis analysis, ahead of the consensus estimate of $0.03. In the fiscal Q3, net income was $96 million compared to a net loss of $1 billion in the prior year, which included non-cash impairment charges of $1.1 billion. During this period, NWSA reported diluted earnings per share of $0.13, as compared to -$1.24 in the prior year. Looking ahead, cost declines are expected to moderate from the first half, as the company plans to lap some Covid-19 saving initiatives and see closure or digital transition of some of its newspapers in Australia in Q4.

For the full year, we expect NWSA’s net margin to grow to reach 3.4% in fiscal 2021. This coupled with a marginal fall in revenues, could lead to a rise in net income to $0.3 billion in fiscal 2021. All this, resulting in a possible EPS increase from a loss of $2.16 in fiscal 2020 to $0.52 in fiscal 2021.

(3) Stock price estimate higher than the current market price

Going by our NWSA valuation, with an EPS estimate of 52 cents and P/E multiple of around 52x in fiscal 2021, this translates into a price of $27, which is 10% higher than the current market price of roughly $24.

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