News Corp reports higher revenue across all segments in third quarter earnings report
The company’s in-store division, News America Marketing helped the News and Information Services segment record revenue growth, but turning a profit remains a difficult task for the company, despite being far more diversified than many of its rivals
The third quarter earnings report from News Corp was an interesting mix of good news-bad news, as the company was able to grow revenue in all four of its industry segments, yet still reported a small loss on the quarter.
News Corp, as I have pointed out, is the most diversified of the publishing companies spun off of their broadcast properties. Rupert Murdoch allowed News Corp (the new News Corp) to begin life without being weighted down with debt, and with properties other than just newspapers.
The News and Information Services division, made up of newspapers, was able to grow ad revenues 4 percent in Q3, thanks to its other element, News America Marketing. The segment was also able to have a positive EBITDA of $123 million, versus a loss of $187 million in the same quarter a year ago.
The book publishing segment reported revenues in the quarter increased $16 million, or 4 percent, thanks to strong sales for Hidden Figures by Margot Lee Shetterly, and other titles.
Digital Real Estate Services continues to grow for News Corp, with revenue up 13 percent.
But despite being diversified, the News and Information Services segment still accounts for almost 64 percent of total revenue, and that segment is still down 3 percent (revenue-wise) for the full year (three quarters), and book publishing revenue is essentially flat. That means the digital real estate segment, though growing strongly, still can’t make up for losses elsewhere.
So, despite the revenue gains, News Corp is still showing a loss of $310 million for the first three quarters of the year. That is why I find News Corp a fascinating company. In fact, while everyone else is looking at The New York Times Company for guidance, I look at News Corp (and certainly not because of politics). News Corp, on the one hand is more diversified than other companies in the space; but on the other hand, its newspapers are ones that I would not read myself, often slimy tabloids of the worst kind. Imagine if the mix were different.
Here is News Corp’s Q3 earnings statement:
NEW YORK, NY – May 9, 2017 – News Corporation today reported financial results for the three months ended March 31, 2017.
Commenting on the results, Chief Executive Robert Thomson said:
“In the third quarter, we saw particular progress in our quest to be more digital and global, while there was tangible improvement in operating efficiencies. We posted solid revenue growth and substantial earnings growth, highlighted by momentum in Digital Real Estate Services, where realtor.com® continued to expand traffic, revenue and profitability.
At News and Information Services, while print advertising remains volatile, we saw some moderation this quarter. Overall, the segment was a source of growth this quarter – in both revenues and profitability – driven by, in particular, the robust performance of in-store product at News America Marketing, digital subscriber gains of more than 300,000 at the Wall Street Journal and the benefits of ongoing cost control.
The quarter was also characterized by an intensifying social and commercial debate over the dysfunctionality of the digital duopoly, and the lack of transparency in audience and advertising metrics. With brands in search of authenticated audiences and trusted advertising environments, we firmly believe that our mastheads offer veracity and value, and we are rapidly developing a new digital ad platform to offer clearly defined demographics from across our range of prestigious properties.”
THIRD QUARTER RESULTS
The Company reported fiscal 2017 third quarter total revenues of $1.98 billion, compared to $1.89 billion in the prior year period. Reported revenues reflect growth at the News and Information Services segment, driven by News America Marketing and the acquisitions of Australian Regional Media (“ARM”) and Wireless Group plc (“Wireless Group”), partially offset by lower print advertising revenues, as well as continued strong performance at the Digital Real Estate Services and Book Publishing segments. Adjusted Revenues (which exclude the impact of foreign currency, acquisitions and divestitures as defined in Note 1) increased 3% compared to the prior year.
Income (loss) from continuing operations for the quarter was break-even as compared to ($128) million in the prior year. Reported results were driven by higher Total Segment EBITDA, as discussed below, which reflects the absence of a one-time pre-tax charge of $280 million for the settlement of litigation and related claims at News America Marketing in the prior year (the “NAM Group settlement charge”). The growth was partially offset by higher tax expense and the absence of a $107 million tax benefit in the prior year related to the NAM Group settlement charge, lower contribution from Other, net and lower equity earnings of affiliates, primarily driven by costs related to Foxtel’s shutdown of Presto and the loss resulting from the change in the fair value of Foxtel’s investment in Ten Network Holdings.
The Company reported third quarter Total Segment EBITDA of $215 million, compared to ($122) million in the prior year, which included the NAM Group settlement charge mentioned above. Adjusted Total Segment EBITDA (as defined in Note 1) was 30% higher compared to the prior year, primarily due to the continued growth in the Digital Real Estate Services segment and at News America Marketing, as well as an adjustment to the deferred consideration accrual related to the acquisition of Unruly, partially offset by a one-time corporate charge of $11 million associated with a change in the Company’s executive management.
Loss per share from continuing operations available to News Corporation stockholders was ($0.01) as compared to ($0.26) in the prior year.
News and Information Services
Revenues in the quarter increased $32 million, or 3%, compared to the prior year. Adjusted Revenues increased 1% compared to the prior year.
Advertising revenues increased 4% due to higher in-store product revenues at News America Marketing, primarily driven by an increase in client spending and, to a lesser extent, timing-related benefits. Advertising revenues also benefited by $21 million from the acquisition of Wireless Group and $20 million from the acquisition of ARM. These factors were partially offset by weakness in the print advertising market.
Circulation and subscription revenues decreased 1%, but increased 3% excluding an $18 million impact from negative foreign currency fluctuations, due to higher subscription pricing and selected cover price increases, partially offset by lower print volume.
Segment EBITDA for the quarter was $123 million compared to ($187) million in the prior year. Fiscal 2016 third quarter Segment EBITDA would have been $93 million, excluding the NAM Group settlement charge of $280 million. Excluding that settlement charge, Fiscal 2017 third quarter Segment EBITDA would have increased $30 million, or 32%, as compared to the prior year. The increase was driven by higher revenues at News America Marketing, lower expenses across the businesses due to lower print volume and ongoing cost efficiencies, as well as a $12 million adjustment to the deferred consideration accrual related to the acquisition of Unruly.
Digital revenues represented 24% of segment revenues in the quarter, compared to 23% in the prior year; for the quarter, digital revenues for Dow Jones and the newspaper mastheads represented 29% of their revenues. Digital subscribers and users across key properties within the News and Information Services segment are summarized below:
- The Wall Street Journal average daily digital subscribers in the three months ended March 31, 2017 were 1,198,000, compared to 893,000 in the prior year (Source: Internal data)
- Closing digital subscribers at News Corp Australia’s mastheads as of March 31, 2017 were 333,400 (including ARM), compared to 261,500 in the prior year (Source: Internal data; adjusted for divested mastheads)
- The Times and Sunday Times closing digital subscribers as of March 31, 2017 were 185,000, compared to 174,000 in the prior year (Source: Internal data)
- The Sun’s digital offering reached more than 80 million global monthly unique users in March 2017, compared to 36 million in the prior year, based on ABCe (Source: Omniture)
Revenues in the quarter increased $16 million, or 4%, compared to the prior year, primarily due to strong sales from Hidden Figures by Margot Lee Shetterly, the continued popularity of Hillbilly Elegy by J.D. Vance and the release of Carve the Mark by Veronica Roth, as well as the continued expansion of HarperCollins’ global footprint.
Digital sales increased 7% compared to the prior year and represented 22% of Consumer revenues for the quarter. Segment EBITDA for the quarter increased $1 million, or 3%, as compared to the prior year.
Digital Real Estate Services
Revenues in the quarter increased $25 million, or 13%, compared to the prior year, primarily due to the continued growth at REA Group and Move. The growth was partially offset by the $9 million and $4 million impact from REA Group’s divestiture of its European business and Move’s sale of its TigerLead® product, respectively. Segment EBITDA in the quarter increased $36 million, or 92%, compared to the prior year, primarily due to the higher revenues noted above, $13 million of lower legal costs at Move and the absence of $7 million of transaction costs related to iProperty in the prior year, partially offset by increased costs related to higher revenues and increased marketing expenses. Adjusted Revenues and Adjusted Segment EBITDA increased 15% and 68%, respectively.
In the quarter, revenues at REA Group increased 10% to $117 million from $106 million in the prior year due to an increase in Australian residential depth revenue, driven by favorable product mix and pricing increases, and a $6 million impact from favorable foreign currency fluctuations. The growth was partially offset by a $9 million, or 9%, decline in revenue resulting from the sale of REA Group’s European business in December 2016.
Move’s revenues in the quarter increased 15% to $100 million from $87 million in the prior year, primarily due to the continued growth in its ConnectionSM for Buyers product and non-listing Media revenues. The growth was partially offset by a $4 million decline in revenue associated with the sale of TigerLead® in November 2016. Based on Move’s internal data, average monthly unique users of realtor.com®’s web and mobile sites for the fiscal third quarter grew 9% year-over-year to approximately 55 million; traffic in March grew 13% year-over-year to over 58 million monthly unique users.
Cable Network Programming
Revenues in the quarter increased $15 million, or 14%, compared to the prior year primarily due to the acquisition of Sky News and favorable foreign currency fluctuations. Segment EBITDA in the quarter was flat compared to the prior year. Adjusted Revenues and Adjusted Segment EBITDA, which exclude the impact from favorable foreign currency fluctuations and Sky News, increased 1% and 3%, respectively.