News Corp Reports Higher-Than-Expected Second-Quarter Fiscal 2024 Results

Director

Brian Han

News Corp operates in a sector undergoing significant changes, with the legacy print-based publishing business model being dismantled by proliferating news and information outlets in the digital space. This is compounded by ever-improving means for consumers to access them, driven by mobility and continuing device innovation. Consequently, News faces material structural headwinds, with consumers migrating from newspapers to the digital arena and advertisers following suit. 

Having said that, we believe News is better placed than peers in the publishing space to transition its print business to the digital age. It has some of the most venerable masthead brands in the industry (The Wall Street Journal, The Times), and boasts significant editorial resources, especially compared with those of its rivals, which have been dwindling. The company's financial position is solid. Even with the recent consolidation of Foxtel's debt and a string of acquisitions, News boasts sufficient financial strength to transition the business to the digital age while also exploring opportunities to diversify away from the traditional newspaper business. Recent efforts to simplify the group is also positive, while a USD 1 billion buyback was announced in August 2021.

While News Corporation deals with the structural challenges facing its publishing business, the company was partly shielded by its Australian pay-television operations in 65%-owned Fox Sports and Foxtel. Unfortunately, these two businesses are also coming under severe pressure from digital streaming alternatives to pay TV. On the positive side, the 61%-owned REA Group's growth outlook remains robust in the online real estate classifieds space and the Move (acquired in November 2014) is making strong progress in the U.S. digital property advertising space.

Business Strategy & Outlook

We see News Corporation as having no economic moat. 

The group generates over 40% of its core earnings from the newspaper and print publishing market--one that is undergoing big structural changes. With increasing disintermediation caused by developments in digital technology, the internet, and mobile devices, the industry's traditional stranglehold on consumers is waning rapidly in most developed countries. With dwindling audiences for print-based products, advertisers are also following the eyeballs to the digital arena and migrating away from the medium. Indeed, classified revenue has all but deserted the publishing industry, while display advertising is following fast. Furthermore, with falling newspaper and advertising sales, printing presses are being downsized and, in some cases, dismantled altogether, eliminating one of the main entry costs that traditionally deterred new players from entering the industry. 

There are some properties within News Corporation moat-worthy traits. The Wall Street Journal, housed under the Dow Jones operating unit, is a venerable brand name, especially in the world of global finance. 65%-owned Fox Sports and Foxtel enjoy solid positions in the Australian subscription television programming and distribution market, respectively, although digital streaming is having a material negative impact on subscriber additions and programming costs. As such, management is now investing into the digital subscriber video on demand, or SVOD, space with early progress for Kayo and Foxtel Now streaming services very encouraging. The company owns 61% of REA Group, the number-one digital player in the lucrative Australian real estate listing and advertising space. However, the qualities of network effect and efficient scale in these assets are collectively not significant enough to warrant assigning a moat to the entire News Corporation group.

None

Economic Moat

News Corp

HarperCollins Publishers L.L.C. is one of the world's largest publishing companies and is one of the Big Five English-language publishing companies, alongside Hachette, Macmillan, Penguin Random House, and Simon & Schuster. The company is headquartered in New York City and is a subsidiary of News Corp. The name is a combination of several publishing firm names: Harper & Row, an American publishing company acquired in 1987 (whose own name was the result of an earlier merger of Harper & Brothers (founded 1817) and Row, Peterson & Company), together with UK publishing company William Collins, Sons (founded 1819), acquired in 1990.

Harper Collins Publishers

The Wall Street Journal is a U.S. business-focused, English-language international daily newspaper based in New York City. The Journal, along with its Asian and European editions, is published six days a week by Dow Jones & Company, a division of News Corp. The newspaper is published in the broadsheet format and online.

Wall Street Journal

The New York Post is a daily newspaper in New York City. The Post also operates the celebrity gossip site PageSix.com, the entertainment site Decider.com, and co-produces the television show Page Six TV.

New York Post

News Corp. is diversified media and information services company, which engages in the business of creating and distributing authoritative and engaging content and other products and services to consumers and businesses. It operates through the following segments: Digital Real Estate Services, Subscription Video Services, Dow Jones, Book Publishing, News Media, and Other. The Digital Real Estate Services segment is involved in the operations of the REA Group. The Subscription Video Services segment provides sports, entertainment, and news services to pay-TV and streaming subscribers and other commercial licensees. The Dow Jones segment offers content and data through a variety of owned and off-platform media channels including newspapers, newswires, websites, mobile apps, newsletters, magazines, proprietary databases, live journalism, video, and podcasts. The Book Publishing segment focuses on HarperCollins which publishes and distributes consumer books globally through print, digital, and audio formats. The News Media segment includes the operations of News Corp Australia, News UK, and the New York Post. The Other segment consists of corporate overhead expenses, strategy costs, and costs related to the newspaper matters. The company was founded by Keith Rupert Murdoch in 1979 and is headquartered in New York, NY.

Earnings data Q3 2024

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