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News Corp. (NWSA) Up 12.6% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for News Corp. (NWSA). Shares have added about 12.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is News Corp. due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

News Corporation’s Q1 Earnings Miss Estimates

News Corporation reported first-quarter fiscal 2023 results, wherein the top and the bottom line lagged the Zacks Consensus Estimate and declined from the year-ago fiscal period’s respective figures. NWSA witnessed revenue declines across all its segments except Dow Jones.

Quarterly Details

News Corporation delivered adjusted quarterly earnings of 12 cents a share. The bottom-line figure missed the Zacks Consensus Estimate of 20 cents and plunged 47.8% from adjusted earnings of 23 cents reported in the last fiscal year’s comparable period.

Total revenues of $2,478 million lagged the Zacks Consensus Estimate of $2,568 million and dipped 1% from the prior-year fiscal quarter’s levels. The decline was mainly due to negative foreign currency fluctuations and lower revenues at the Book Publishing segment on account of lower physical book sales from Amazon, partly offset by higher revenues in the Dow Jones segment. Foreign currency fluctuations had a 6% negative impact on revenues. Adjusted revenues rose 3%.

Total EBITDA decreased 15% from the year-ago fiscal quarter’s level to $350 million, thanks to higher costs due to inflationary pressures and lower sales. Foreign currency fluctuations had a $23-million negative impact on total segment EBITDA. Adjusted total segment EBITDA fell 13%.

Segment Details

Revenues at the Digital Real Estate Services segment slipped 1% from the year-ago fiscal quarter’s reading to $421 million, induced by a 5% negative impact from foreign currency fluctuations. Adjusted segment revenues increased 3%.

Revenues in Move dipped 6% to $169 million due to lower real-estate revenues, somewhat offset by increased advertising revenues. Real Estate revenues, contributing 84% to total Move revenues, fell 9% due to the tough macroeconomic landscape, including higher household interest rates. The referral model generated 30% of the overall Move revenues in the reported quarter. Move’s internal data shows that average monthly unique users of Realtor.com’s web and mobile sites fell 11% from the year-ago fiscal quarter’s tally to 86 million. Lead volume also dropped 32%.

Revenues at the REA Group inched up 2% to $252 million, driven by greater depth penetration, growth in national listings and higher Australian residential revenues on price increases. The upside was somewhat offset by 9% foreign currency headwinds and lower financial services revenues.

The Subscription Video Services segment’s revenues were $502 million, down 2% from the year-ago fiscal quarter’s actuals. Foreign currency fluctuations adversely impacted the segment’s revenues by 8%. Increased revenues from Kayo and BINGE as well as higher commercial and advertising revenues were partly offset by fewer residential broadcast subscribers. Adjusted segment’s revenues rose 6% from the year-ago fiscal quarter’s level to $542 million.

Foxtel Group streaming subscription revenues represented nearly 25% of the overall circulation and subscription revenues compared with 19% in the prior year. Foxtel’s total closing paid subscribers were 4.5 million as of Sep 30, 2022, reflecting an increase of 16% from the year-ago fiscal quarter’s level. The upside can be attributed to an increase in BINGE and Kayo subscribers, partly offset by lower residential broadcast subscribers. Broadcast subscriber churn improved slightly to 14.2% from 14% in the previous fiscal year. Broadcast ARPU grew 1% from the year-earlier fiscal quarter’s reading to A$83 (US$57).

Revenues at the Dow Jones segment rose 16% from the year-ago fiscal quarter’s level to $515 million. This includes contributions of $34 million and $18 million from the buyouts of OPIS and CMA, respectively. Adjusted segment revenues grew 6% from the prior-year fiscal quarter’s level owing to higher circulation and subscription revenues from digital subscription gains and growth in the Risk & Compliance products, and increased digital advertising revenues. The segment’s digital revenues contributed 79% to total revenues compared with 75% seen in the last fiscal year.

Circulation and subscription revenues improved 19% during the fiscal quarter under discussion. Circulation revenues rose 5%, driven by consistent strength in the digital-only subscriptions at The Wall Street Journal. Professional information business revenues jumped 40%, mainly driven by the OPIS and CMA acquisitions and an improvement in the Risk & Compliance products, offset by negative currency fluctuations. Digital circulation revenues represented 68% of the circulation revenues.

Advertising revenues increased 4%, primarily owing to an 11% rise in digital advertising revenues, partly offset by a 6%-drop in print advertising revenues. Digital advertising accounted for nearly 65% of the total advertising revenues in the reported quarter.

During the fiscal quarter, the overall average subscriptions to Dow Jones’ consumer products reached above 4.9 million, up 8% from the prior-year fiscal quarter’s level. Digital-only subscriptions to Dow Jones’ consumer products rose 13%. Subscriptions to The Wall Street Journal jumped 8% to 3.8 million average subscriptions. Digital-only subscriptions to The Wall Street Journal increased 13% to more than 3.1 million average subscriptions, accounting for 84% of the total Wall Street Journal subscriptions.

The Book Publishing segment reported revenues of $487 million, down 11% from the prior-year fiscal quarter’s level, mainly due to the lower physical book sales stemming from Amazon’s reset of its inventory levels and rightsizing of the warehouse footprint. This resulted in lower order volumes and higher returns in spite of the consumer sales data being consistent with the previous quarters’ statistics. Foreign currency headwinds also hurt revenues to the tune of 4%. Major titles in the fiscal quarter included Portrait of an Unknown Woman by Daniel Silva, Live Wire: Long-Winded Short Stories by Kelly Ripa and Breaking History by Jared Kushner.  

The segment’s adjusted revenues fell 7%. Digital sales grew 1% on increased sales of downloadable audiobooks, offset by lower e-book sales. Digital sales accounted for 23% of the consumer revenues compared with 21% in the prior fiscal year. Backlist sales represented about 65% of the overall revenues in the fiscal first quarter.

Revenues in the News Media segment dipped 4% from the prior-year fiscal quarter’s level to $553 million in the reported quarter due to the adverse impact of 11% from the foreign currency fluctuations. This was partly offset by increased circulation and subscription revenues, and growth in advertising revenues at constant currency. Within the segment, revenues at News Corp Australia rose 1%, while the metric at News UK declined 9%. Adjusted revenues for the segment climbed 6%.

Circulation and subscription revenues dipped 6% due to lower print volumes and a 12% adverse impact from foreign currency fluctuations.

Advertising revenues dipped 4% due to negative foreign currency fluctuations of 9% because of a fall in print advertising at News UK and lower revenues at Wireless Group, partly due to the absence of the Euro 2020.

Digital revenues contributed 36% to the News Media segment’s revenues compared with 33% in the year-ago fiscal quarter. The same accounted for 33% of the combined revenues of the newspaper mastheads. As of Sep 30, 2022, The Times and Sunday Times’ closing digital subscribers comprising the Times Literary Supplement were 468,000. The same at the News Corp Australia was 1,012,000. New York Post’s digital network attained about 151 million monthly unique users in the same month.

Other Financial Aspects

News Corporation ended the quarter with cash and cash equivalents of $1,458 million, borrowings of $2,977 million and a stockholders’ equity of $7,872 million, excluding non-controlling interest of $856 million.

Net cash used by operating activities amounted to $31 million during the first quarter of fiscal 2023. NWSA incurred capital expenditures of $104 million in the said period. Free cash flow available to News Corporation was a negative $122 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

The consensus estimate has shifted -25.71% due to these changes.

VGM Scores

At this time, News Corp. has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise News Corp. has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

Performance of an Industry Player

News Corp. is part of the Zacks Film and Television Production and Distribution industry. Over the past month, Imax (IMAX), a stock from the same industry, has gained 21.8%. The company reported its results for the quarter ended September 2022 more than a month ago.

Imax reported revenues of $68.76 million in the last reported quarter, representing a year-over-year change of +21.5%. EPS of -$0.05 for the same period compares with -$0.08 a year ago.

Imax is expected to post earnings of $0.15 per share for the current quarter, representing a year-over-year change of -51.6%. Over the last 30 days, the Zacks Consensus Estimate has changed -28.2%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #5 (Strong Sell) for Imax. Also, the stock has a VGM Score of F.

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