News Corporation: Navigating The Publishing Industry’s Shift To Digital (NASDAQ:NWS)

News Corporation (NASDAQ:NWSAThe diverse media company ) has operations in the US and UK. They also own well-known brands such The Wall Street Journal and The Herald Sun. Rupert Murdoch and his family trust control it. 39.4% share of the voting interests. The rich history of NWSA’s growth has seen it grow from a small Adelaide newspaper to a global media conglomerate. With Fox Sports and Foxtel at 65%, the company has a strong presence within the Australian pay-TV sector. REA Group is 61% of the company’s real estate listings space. NWSA also owns HarperCollins a major book publisher and has a substantial digital property advertising business in America through Move.

Q2 Earnings – Revenue Down 7% Despite Growing in Professional Information and Streaming Services, EBITDA Declines 30%

Revenue decreased by 7% in the quarter to $2.52 Billion, compared to $2.72 Billion in the previous year. FX had a 6% impact on revenue. The quarter’s total EBITDA fell 30% to $409million. At the Dow Jones segment, the professional information business saw a 45% increase in revenue due to the acquisition of OPIS and CMA and growth in its Risk & Compliance products. Subscription video services also saw growth. Broadcast revenue declined slightly due to higher streaming revenues from Foxtel’s Kayo and BINGE. The News UK segment continued to grow due to strong digital advertising revenue from The Sun. This is a result of the company’s expansion into the U.S. with increased yield and good results. CoStar Group is also in talks with the company regarding possible Move sales.

EBITDA has fallen due to the company’s vulnerability in economic cycles. This decline was due to unfavorable currencies (17%) and other factors, such as rising interest rate on digital realty, declining sentiment on Dow Jones in the technology and financial sector, and softening consumer spending. It comes after the COVID-19 epidemic fueled an 18% increase in EBITDA last year. The EBITDA margin of 16.2% was lower than that of 21.6% during the previous period. This shows the impact of cost inflation.

Evolving Publishing Industry: The Challenges

NWSA is a part of an industry that is experiencing major changes. The traditional model of print publishing has been disrupted by the availability of news and information in the digital space. These outlets are more easily accessible to consumers thanks to technological advancements and device innovations. This creates significant challenges for NWSA, as more people are switching from print to online publishing. Adverts will follow their lead. However, NWSA has a better position than its peers in publishing to make the transition. It is able to do so because it has well-respected brands, robust editorial resources and a stronger brand than competitors who have been cutting back. NWSA is financially sound, and has the lowest leverage of its peers. This means that it can transition to digital while exploring diversification options.

Despite the difficulties facing the publishing industry’s publishing sector, NWSA’s pay TV operations in Fox Sports & Foxtel offer some protection. However, they are also under increasing pressure from digital streaming alternatives. The growth prospects for REA Group, NWSA, are strong and Move, its digital property advertising company, is making substantial progress in the US.

Navigating the Shift in Publishing Industry

Digital technology is transforming the publishing industry. It accounts for a large portion of NWSA core earnings. As consumers and advertisers increasingly turn to digital information sources for news and information, the industry’s traditional dominance is losing its grip on consumers and advertisers. This is leading to a decline of print-based audiences and advertising revenue. Many publishers are now forced to cut back on printing or shut down their entire operations.

In response to falling revenue from subscriptions and print advertising, Gannett Co. (GCI), the largest newspaper publisher in the US, and The Tribune Publishing Company (owners of the Chicago Tribune and New York Daily News), have both cut printing operations. Tribune Publishing has reduced print publication frequency, jobs and consolidated printing operations. In some cases, it even shut down print editions in order to concentrate on digital content. Gannett has reduced its print publication frequency, consolidated printing operations and invested in digital growth through partnerships and acquisitions.

The portfolio of NWSA includes strong assets such as Fox Sports and The Wall Street Journal, which are a solid foundation. Also, NWSA’s investments into digital video on-demand, in particular in Foxtel Now streaming services and Kayo, have been promising. Despite the many challenges faced by legacy newspaper publishing, the company continues to generate significant free cash flow, even though it is declining in rate.

The NWSA’s low leverage level and strong free cash flow make it well-equipped to navigate the transition from traditional publishing into the digital age and explore other business opportunities.

Buybacks of Dividends and Shares

The dividend has remained at 20c per share since 2015 as NWSA used the cash to purchase new businesses. NWSA announced in September 2021 a USD 1 Billion buyback.

Valuation

As my fair value is $19 per shares, I think the shares are reasonable priced. Revenues will grow at 1%, with the digital channel growth partially offset by the decline in print media. In the future, I see some margin compression. These are my major assumptions.

The multiples for this stock are lower than historical, with a $19 share price. This is due to the secular decline in printed media.

Uncertainty and Risk

The ever-changing consumer sentiment and corporate confidence is a key factor in the success of the advertising and marketing industries. This is a serious concern for news media units, which receive a significant amount of their revenue from advertising. The current health crisis could lead to a financial crisis that will affect other revenue sources like subscription video services or property-sensitive, digital real estate services. As the industry shifts online, NWSA will face a long-term challenge in retaining its audience. Even if NWSA can do this, it is critical that it adjusts its cost structure to offset the decreased advertising revenue in the online market.

Conclusion

NWSA has a solid financial position with a stable balance sheet, steady cash flow and a solid balance. This stability distinguishes it from other media companies and allows it to adapt to changing media landscapes. Its cash flow is aided by its portfolio of online real estate classifieds businesses that have been successful in Australia and the U.S.

The publishing industry faces major challenges due to technology and innovation that changes consumer preferences and behavior. While the company is working to change its business model and monetize its online content, external factors could still affect it. While NWSA’s financial stability provides some comfort, it may be costly to acquire assets that diversify earnings. I think the shares are fairly priced and recommend that you stay on the sidelines.