Value Line has initiated coverage of News Corp. (NWSA) in its flagship product, The Value Line Investment Survey. News Corp. comprises a network of leading companies in the worlds of diversified media, news, education, and information services. The company offers newspapers, information and integrated marketing services, digital real estate services, book publishing, digital education, sports programming, and pay-TV distribution in Australia. It was spun off from Twenty-First Century Fox, Inc. (FOX) in an all-stock transaction, completed on June 28, 2013. NWSA shares trade on the NASDAQ.
News Corp. is in a transformation period. The spinoff should help it more efficiently restructure its businesses to adapt from the secular decline in the newspaper and publishing industries. Meantime, it is seeking methods of improving monetization on its core businesses. Indeed, this is the beginning of the digital development of the company. Moreover, it desires to transform its publishing enterprise into a multi-platform business. Embracing globalization and digitization trends, the endgame is to enable a single cost of its content, while the content can be taken in across a multitude of platforms. Essentially, the company’s objective is to become more than the sum of its parts. Transforming News Corp.’s mature news and information services business to cater to the digital age we live in is certainly a main area of focus. Management notes that advertising revenues are moving en masse to digital outlets, so it wants to broaden its capitalization on that front.
The company embraces the mentality that it markets premium content, and that people should have to pay for access to such top-quality content. It wants a strong subscriber base to advertise to, and it desires to get these paying customers even more engaged, and to be able to facilitate more of an average revenue per user model than it currently employs.
The global market for books is actually remaining fairly steady, it is just shifting more and more toward digital mediums. Today, about 28% of global sales are E-books. News Corp. concentrates on fiction, children’s books, and international markets. As the book industry moves more towards digital, distribution becomes a lesser concern. This makes it easier for the company to penetrate international markets without the need for physical infrastructure.
Recent acquisitions include Dublin-based Storyful, to advance its online video capabilities; Handpicked Collection, an upscale shopping website in the U.K.; and, most recently, Harlequin Enterprises, a romance novel publisher. These deals are all expected to be earnings accretive, enhance free cash flow, and expand the company’s market positions. Looking forward, it wants to strengthen its existing businesses with digital add-ons. We look for Asia/Pacific and the U.S. to be key geographic areas of interest.
The company has no debt. Meanwhile, with about $2.9 billion of cash on hand, it should be able to pursue targets and maintain flexibility in its capital deployment decisions. Presently, the company does not issue distributions to shareholders. It does, however, plan to initiate a dividend, quite possibly, we think, in the near future. Internal initiatives will take priority, at least in the near term.
Some risks to the issue include the likely-to-continue secular downturn of its print businesses, and challenges monetizing digital platforms. Thus far, the company admits facing some difficulties monetizing digital advertising.
All told, subscribers interested in News Corp. are advised to consult Value Line’s quarterly reports, as well as any supplemental reports and relevant articles as important news items arise.
At the time of this article’s writing, the author did not have any positions in any of the companies mentioned.