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News Corporation (NWSA) Q1 Earnings Top Estimates, Sales Down

Zacks Equity Research
·8 min read

News Corporation NWSA reported better-than-expected first-quarter fiscal 2021 results. Moreover, this diversified media and information services company swung back to profits after reporting a loss in the last reported quarter. The bottom line also increased on a year-over-year basis.

However, the company’s top line declined year-on-year mainly due to the divestiture of News America Marketing as well as softness in print advertising market. These downsides significantly marred performance of the News Media segment. Also sluggishness at the Subscription Video Services segment was a deterrent.

Nonetheless, revenue growth in the Digital Real Estate Services, Dow Jones and Book Publishing segments were encouraging. Moreover, management is impressed with the strong total segment EBITDA growth witnessed during the quarter.  This Zacks Rank#2 (Buy) company is on track with boosting its digital capabilities to stay at par with rapid transformations in the digital advertising arena as well as advancements in algorithmic transparency.

We note that shares of the company have gained 41.7% in the past six months compared with the industry’s rise of 43.9%.

Quarterly Details

News Corporation delivered adjusted earnings came of 8 cents per share that beat the Zacks Consensus Estimate of 4 cents. Markedly, the bottom line doubled from 4 cents reported in the year-ago quarter.

Total revenues of $2,117 million surpassed the Zacks Consensus Estimate of $1,930 million but declined 10% from the prior-year quarter’s levels. The year-over-year decline in revenues reflects negative impact of $200 million stemming from the divestiture of News America Marketing and softness in the print advertising market. The top line was under pressure due to negative impacts worth $35 million triggered by lower subscription revenues in the Subscription Video Services segment as well as the closure or digital transitioning of certain community newspapers in Australia. These declines were partially offset by growth witnessed in the Book Publishing and Digital Real Estate Services segments as well as a 2% (or $50 million) positive impact from foreign currency movements.

Excluding the impact of acquisitions, divestitures and foreign currency fluctuations, adjusted revenues were $ 2,057 million, down 3% year over year.

Total segment EBITDA was $268 million, reflecting an increase of 21% from the prior-year quarter’s levels. The year-over-year growth resulted from growth in the Book Publishing, Digital Real Estate Services and Dow Jones segments, partially countered by a decline in News Media segment owing to the divestitures of News America Marketing and Unruly. Further, adjusted total segment EBITDA increased 23% to $261 million.

News Corporation Price, Consensus and EPS Surprise

News Corporation Price, Consensus and EPS Surprise
News Corporation Price, Consensus and EPS Surprise

News Corporation price-consensus-eps-surprise-chart | News Corporation Quote

Segment Details

Revenues in the Digital Real Estate Services segment increased 7% year over year to $290 million, including a 3% positive impact from foreign currency fluctuations. Adjusted revenues for the segment improved 4%, while adjusted EBITDA surged 40%.

Revenues in REA Group grew 2% year over year to $152 million, driven by a 4% positive impact from foreign currency fluctuations. Moreover, modest declines in developer, commercial and Asian businesses were compensated by slight growth in residential revenues and growth in financial services revenues.

Further, revenues in Move went up 12% to $ $138 million on account of higher real estate revenues. Real Estate revenues, which represented 81% of total Move revenues, had improved 13% gaining from strong referral model backed by increased average monthly lead volume and average home values. However, revenues in the traditional lead generation product declined. Additionally, Move’s internal data reveals that average monthly unique users of realtor.com’s web and mobile sites in the first quarter improved 26% to reach to 90 million.

The Subscription Video Services segment’s revenues were $496 million, down 4% year over year, including a 3% gain from foreign currency fluctuations. The downside was due to lower residential broadcast subscribers as well as a 3% negative impact from lower commercial subscription revenues arising out of the ongoing limitations on pubs, clubs and other commercial venues due to the pandemic. The downsides were somewhat offset by higher OTT products revenues. Adjusted revenues for the segment declined 7%, while adjusted EBITDA went down 9%.

Foxtel’s total closing paid subscribers were roughly 3.287 million as of Sep 30, 2020, reflecting a rise of 7%. The growth resulted from increased subscribers at Kayo and the launch of Binge, partially offset by reduced commercial and residential broadcast subscribers. Broadcast subscriber churn was 14.6% in the quarter under review compared with 14.4% in the prior year. Meanwhile, Broadcast ARPU improved 1% to A$79 (US$56).

Revenues in the Dow Jones segment rose 1% year over year to $386 million mainly due to increased subscription and circulation revenues, partially countered by reduced revenues from print advertising. The segment’s digital revenues represented 73% of total revenues compared with 65% in the prior-year quarter. Adjusted revenues also improved 1%, while adjusted EBITDA grew 47%.

Notably, circulation and subscription revenues improved 8% during the quarter under review, backed by improved revenues from content licensing partnership as well as higher circulation revenues. Markedly, strong growth in digital-only subscription supported circulation revenue rise. Further, professional information business revenues improved 2%. However, advertising revenues decreased 17% year over year. This was due to a 39% fall in print advertising revenues on account of general market weakness and lower volume across The Wall Street Journal and Barron’s due to COVID-19, partly compensated by a 14% rise in digital advertising revenues. Digital advertising represented 57% of total advertising revenues in the quarter.

During the quarter, total subscriptions to Dow Jones’ consumer products reached roughly 3.88 million, reflecting an increase of 18% from the year-ago period. We note that digital-only subscriptions surged 29%. Subscriptions to The Wall Street Journal rose 19% to approximately 3.1 million average subscriptions. Digital-only subscriptions to The Wall Street Journal increased 27% to more than 2.35 million average subscriptions in the quarter, and represented 76% of its total subscriptions.

The Book Publishing segment reported revenues of $458 million, up 13% year over year. This included a 1% gain from foreign currency exchange rates. The segments revenue growth was mainly driven by augmented sales of General books including success of titles like The Order by Daniel Silva, The Guest List by Lucy Foley and How to Destroy America in Three Easy Steps by Ben Shapiro. Children’s books also witnessed rapid growth driven by enhanced backlist sales across various titles. Digital sales, which constituted 23% of Consumer revenues, surged 20% mainly due to growth in e-books and audiobook sales. Adjusted revenues in the segment went up 10%, while adjusted EBITDA rallied 41%.

Revenues in the News Media segment plunged 37% year over year to $487 million in the reported quarter, including a 2% positive impact from foreign currency fluctuations. The segment’s revenue decline was mainly driven by a 26% adverse impact stemming from the divestiture of News America Marketing in May 2020. The segment was also hurt to the tune of 5% due to the closure or digital transitioning of certain regional and community newspapers in Australia. Additionally, within the segment, revenues at News Corp Australia and News UK went down by 20% and 8%, respectively. Adjusted revenues for the segment fell 16%.

Circulation and subscription revenues improved by $1 million, backed by growth in digital subscribers, positive impact from foreign currency movements as well as price rises. Advertising revenues fell 59% year over year owing to the divestiture of News America Marketing, softness in the advertising market, closure or digital transitioning of certain community titles in Australia,

Digital revenues contributed 28% to the News Media segment revenues compared with 19% in the year-ago quarter. As of Sep 30, The Times and Sunday Times closing digital subscribers were 337,000. Closing digital subscribers at News Corp Australia’s mastheads were 685,200. The Sun’s digital offering reached nearly 140 million global monthly unique users in September, 2020, while New York Post’s digital network reached about 144 million average monthly unique users.

Other Financial Aspects

News Corporation ended the quarter with cash and cash equivalents of $1,539 million, borrowings of $1,206 million and shareholders’ equity of $7,639 million, excluding non-controlling interest of $815 million.

Net cash provided by operating activities of $155 million for the three months ended Sep 30, 2020, was higher than $27 million in the prior-year quarter. Capital expenditures amounted to $93 million in the quarter. Free cash flow available to News Corporation was $65 million.

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