News Corporation (NWSA) Q3 Earnings Top Estimates, Sales Up

News Corporation NWSA reported sturdy third-quarter fiscal 2021 results, with the top and the bottom line increasing year on year and surpassing the Zacks Consensus Estimate. .

Markedly, revenues grew across all the company’s segments, except News Media. Management highlighted that the quarterly results reflect on the company’s prudent strategic efforts, which includes the ongoing digital transformation of the business, lowering cost base as well as investments in the Digital Real Estate Services, Dow Jones and Book Publishing segments.

This Zacks Rank #2 (Buy) company is also witnessing rapid expansion at Move. Also, strong digital revenue growth at Dow Jones and Book Publishing has served as an upside. Additionally, management is impressed with Foxtel’s resurgence amid the pandemic, which reflects its strong broadcasting offerings and rapid growth of streaming services. The company was successful at resetting the terms of trade for premium journalism content by striking historic deals with Alphabet Inc.’s GOOGL Google and Facebook, Inc. FB

We note that shares of this diversified media and information services company have gained 19.8% in the past three months compared with the industry’s decline of 14.5%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Quarterly Details

News Corporation delivered adjusted earnings of 9 cents per share, which beat the Zacks Consensus Estimate of 1 cent. Markedly, the bottom line increased substantially from 3 cents reported in the year-ago quarter.

Total revenues of $2,335 million surpassed the Zacks Consensus Estimate of $2,162 million. The top line increased 3% from the prior-year quarter’s levels, driven by an 8% positive impact from foreign currency fluctuations as well as growth in the Digital Real Estate Services, Book Publishing and Dow Jones segments. The upside was partially offset by lower revenues in the News Media segment, primarily driven by a negative impact of $199 million (or 9%) from the divestiture of News America Marketing as well as weakness in the print advertising market. Moreover, negative impacts worth $28 million triggered by the closure or digital transitioning of certain regional and community newspapers in Australia also put pressure on the top line.

Excluding the impact of acquisitions, divestitures and foreign currency fluctuations, adjusted revenues were $2,140 million, up 4% year over year.

Total segment EBITDA was $298 million, up 23% from the prior-year quarter’s levels. The year-over-year upside resulted from higher revenues and a $32-million (or 13%) worth favorable foreign currency impacts. These were partially offset by higher costs in the Other segment as well as a negative impact of $24 million stemming from the divestiture of News America Marketing in the year-ago quarter. Further, adjusted total segment EBITDA increased 24% to $274 million.

News Corporation Price, Consensus and EPS Surprise

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

Segment Details

Revenues at the Digital Real Estate Services segment increased 34% year over year to $351 million, backed by strong performance at Move and a 10% positive impact from foreign currency fluctuations. Adjusted revenues in the segment increased 22%, while adjusted EBITDA surged 52%.

Further, revenues in Move went up 37% to $162 million owing to higher real estate revenues. Real Estate revenues, which contributed 84% to total Move revenues, had improved 43% on strength in the referral model and the traditional lead generation product. These were buoyed by increased average monthly lead volume. Additionally, Move’s internal data reveals that average monthly unique users of realtor.com’s web and mobile sites in the third quarter improved 44% to 98 million.

Revenues in REA Group rallied 32% year over year to $189 million, driven by a 19% positive impact from foreign currency fluctuations, the acquisition of Elara and growth in Australian residential depth revenues.

The Subscription Video Services segment’s revenues were $523 million, up 13% year over year including a 17% gain from foreign currency fluctuations and increased revenues from Kayo and Binge. The upsides were somewhat offset by the impact of fewer residential broadcast subscribers as well as lower commercial subscription revenues arising out of reduced occupancy at hotels due to the ongoing national travel restrictions related to COVID-19 pandemic. Adjusted revenues in the segment fell 4%, while adjusted EBITDA increased 13%.

Foxtel’s total closing paid subscribers were roughly 3.541 million as of Mar 31, 2021, reflecting a rise of 21% year on year. The upside resulted from increased subscribers at Kayo and the launch of Binge, partially offset by reduced commercial and residential broadcast subscribers. Broadcast subscriber churn was 20.1% in the quarter under review compared with 17.5% in the prior-year quarter. Meanwhile, Broadcast ARPU increased 2% to A$80 (US$62).

Revenues at the Dow Jones segment rose 6% year over year to $421 million mainly due to increased circulation and subscription as well as digital advertising revenues, partially countered by reduced revenues from print advertising. The segment’s digital revenues contributed 74% to total revenues compared with 68% in the prior-year quarter. Adjusted revenues also increased 5%, while adjusted EBITDA rose 59%.

Notably, circulation and subscription revenues improved 9% during the quarter under review, including a 2% favorable impact of foreign currency fluctuations. Circulation revenues rose 8% driven by consistent strength in digital-only subscriptions, partly offset by reduced single-copy and amenity sales owing to COVID-19. Further, professional information business revenues improved 9%, due to growth in Risk & Compliance products. Digital circulation revenues represented 64% of circulation revenues versus 58% in the year-ago quarter.

Advertising revenues increased 1%, mainly due to a 30% rise in digital advertising revenues, thanks to continued growth in direct display sales and improvement across most categories, especially financial services. Digital advertising contributed 61% to total advertising revenues in the reported quarter. These upsides were partially countered by a 25% decline in print advertising revenues, owing to general market weakness and lower print volume across The Wall Street Journal and Barron’s due to COVID-19.

During the quarter, total subscriptions to Dow Jones’ consumer products reached 4.27 million average subscriptions, reflecting an increase of 19% from the prior-year quarter’s level. We note that digital-only subscriptions surged 29%. Subscriptions to The Wall Street Journal rose 21% to approximately 3.38 million average subscriptions. Digital-only subscriptions to The Wall Street Journal increased 29% to 2.63 million average subscriptions in the reported quarter and represented 78% of its total subscriptions.

The Book Publishing segment reported revenues of $490 million, up 19% year over year. This included a 2% gain from foreign currency exchange rates. The segment’s revenue growth was driven by higher backlist sales, including the series of Bridgerton titles by Julia Quinn and The Boy, the Mole, the Fox and the Horse by Charlie Mackesy, as well as the success of new titles such as Just as I Am by Cicely Tyson. Digital sales, which constituted 26% of Consumer revenues, surged 38% mainly on growth in e-books and downloadable audiobook sales. Adjusted revenues in the segment went up 15%, while adjusted EBITDA rose 43%.

Revenues in the News Media segment plunged 25% year over year to $550 million in the reported quarter. This includes a 7% positive impact from foreign currency fluctuations. The segment’s revenue decline was mainly due to a 27% adverse impact stemming from the divestiture of News America Marketing in May 2020. The segment was also hurt to the tune of 4% due to the closure or digital transitioning of certain regional and community newspapers in Australia as well as a weak print advertising market. Additionally, within the segment, revenues at News Corp Australia and News UK increased 2% each. Adjusted revenues for the segment fell 7%. Adjusted Segment EBITDA amounted to $5 million

Circulation and subscription revenues improved 13%, backed by growth in digital subscribers, positive impact from foreign currency movements as well as price rises. These were partly offset by reduced single-copy sales revenues, mainly at News UK. Further, advertising revenues tumbled 50% year over year owing to the divestiture of News America Marketing, persistent softness in the print advertising market and closure or digital transitioning of some regional and community newspapers in Australia. These were somewhat mitigated with a 6% positive impact from foreign currency fluctuations and digital advertising growth at the New York Post.

Digital revenues contributed 30% to the News Media segment revenues compared with 19% in the year-ago quarter. Digital revenues accounted for 28% of the combined revenues of the newspaper mastheads. As of Mar 31, 2021, The Times and Sunday Times closing digital subscribers were 354,000. Closing digital subscribers at News Corp Australia’s mastheads were 760,000. The Sun’s digital offering reached nearly 119 million global monthly unique users in March 2021, while New York Post’s digital network reached about 139 million unique users in the same month.

Other Financial Aspects

News Corporation ended the quarter with cash and cash equivalents of $1,974 million, borrowings of $1,000 million and shareholders’ equity of $8,188 million, excluding non-controlling interest of $941 million.

Net cash provided by operating activities amounted to $1,060 million, for the nine months ended Mar 31, 2021. Capital expenditures amounted to $253 million in the first nine months. Free cash flow available to News Corporation was $762 million.

Key Things to Note

We note that in March, the company entered into an agreement to acquire Houghton Mifflin Harcourt’s HMHC Books & Media segment for a cash outlay of $349 million. The deal, which is subject to satisfaction of customary closing conditions, will most likely be concluded in the fourth quarter of fiscal 2021. In the same month, REA Group entered into an agreement to acquire Mortgage Choice Limited, for approximately A$244 million in cash (nearly $186.5 million based on exchange rates as of the date of announcement). The buyout is also expected to close in the fourth quarter. On May 5, the company announced that it has completed the acquisition of Investor’s Business Daily from O’Neil Capital Management for $275 million in cash. These moves along with multi-year agreements with Google and Facebook indicate that News Corporation is undertaking prudent efforts to drive growth across its portfolio.

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