News Corp delivers strong performance in a market cold on subscription businesses

Last week in a briefing for the quarterly results from American newspaper publisher Gannett (USA Today and others), there were no questions from analysts at the post results briefing.

At News Corp’s post results briefing this morning, Sydney time, there were seven, four from Australian analysts, three from the US. The reason? At News Corp, there is something of an upside to talk about; at Gannet, the news was unrelentingly bad.

Gannett revealed terrible figures: weak ad revenues, falling circulations and big job cuts to come through newsrooms, back offices and printing operations. As a result, its shares fell more than 25% in a day.

News Corp reported after Monday’s close. The shares rose more than 5%, a strong performance given they have fallen more than 20% year to date in the US because of the way US investors have gone right off any subscription-based investment.

This performance is after the weak figures from Netflix and other subscriber-based companies: Snap, Twitter, Facebook (down more than 40% year to date) and even The New York Times which had a solid second quarter but saw the shares add to a 35% plus slide in its share price so far in 2022.

News Corp is now a subscriber-based business in its newspapers — Australia, the UK, the US (The Wall Street Journal especially and the New York Post). Foxtel is founded on subscriber numbers and the real estate businesses in Australia and the US (and now India) are digital and trying to build revenue streams based on regular use, expanding into financial services such as mortgages.

HarperCollins would be the most traditional of News Corp’s businesses and, like other major publishers, has survived digital books, Kindles and the like to continue increasing sales of books in an analogue, paper form.

Despite the 20% plus slide in the share price this year, News Corp can at least boast of its best financial year (to June 30) with record revenues and earnings. It has taken nine years — since the Murdoch empire hived off its entertainment division — for that to occur.

Inflation both helped and hindered the company, which slipped in price rises throughout the business. There has been an A$A2 a month rise in the cost of its Binge streaming service and cover price increases across its Australian and UK newspapers.

Cost pressures remain, though, and chief financial officer Susan Panuccio made it clear on the results briefing — both in commentary and in answer to questions — that News has cost-cutting and amelioration plans in place.

She singled out costs pressures in fuel and transport and supply chain problems in ink and paper at Harper Collins, higher wages (unspecified) and higher newsprint costs at the papers in Australia, the UK and US (The Wall Street Journal and New York Post).

Foxtel boosted subscriber numbers — for the sports stream Kayo, and the general stream Binge. Subscribers to Foxtel Now again fell, as did residential cable subscribers who are now at their lowest for years at 1.48 million.

Still Average Revenue per Subscriber (ARPU) rose to A$83 in the quarter and churn eased. Foxtel actually saw a steadying in its costs, its revenues and had an OK quarter from what was disclosed in the results. Not one of the seven analysts asked about the now abandoned plans to float off Foxtel on the ASX and yet up to early May that was all they could talk and write about.

The Australian newspaper businesses seemed to improve. News Corp put a figure of US$109 million as the contribution to the US$165 million growth in as the News media segment’s annual earnings before interest, tax, depreciation and amortisation. No comparative figure was given in 2020-21 so that looks like it was a loss for that year.

Australian newspaper digital subscriptions rose to total 964,000, with 882,000 for the newspaper mastheads against 859,000 a year ago and 810,000 for the mastheads. But The Wall Street Journal was the star with higher revenues, higher digital subscribers, higher digital revenues and faster growth. The Journal group has 4.89 million digital subscribers across the Journal, Barrons (and Marketwatch) and other businesses. That was up 9% or 396,000 over the year.

Digital real estate (REA in Australia and India and Move in the US) remains News Corp’s biggest business so far as revenue and earnings are concerned.

The Wall Street Journal is growing quickly and Foxtel and HarperCollins have steadied (HarperCollins will get a huge boost from the latest Lord of the Rings extravaganza that Amazon Prime launches as a streaming series next month, so watch for the gushing stories in the family’s Australian newspapers that will masquerade as news).

The results were for a 53-week year, so that boosted revenues by US$110 million, but they still would have been a record anyway. News reported an 11% rise in revenues to US$10.385 billion and net profit for the year was US$760 million (A$1.1 billion) 

News Corp, though, gives the impression that it has been running up and down on the spot ever since the split in 2013. Its sharemarket values add to that impression. It was US$10 billion at the end of trading on Monday, or about A$14.5 billion.

That is still less than the value of REA Group — A$16.4 billion. News Corp owns 61% of REA and that stake is helping keep the total value of News afloat and looking half decent in comparison to other media groups. No wonder CEO Robert Thomson tap-danced his way around an analyst’s question about whether News was happy with the present ownership structure.

Of course it is (it being the controlling Murdoch clan) because it tells investors and analysts that News has growth assets (it owns 80% of Move in the US, a version of REA which owns the other 20%). Without REA broken out as it is now, News would just be a collection of old-line media and related assets in addition to hard to value digital real estate operations.

REA’s separate listing might be embarrassing in that it reminds investors how little the market values the non-real estate businesses, but it serves its purpose and allows News to differentiate itself from other media/real estate companies (such as Domain in Australia and Zillow in the US).