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News Corp. (NWSA) Down 23.8% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for News Corp. (NWSA). Shares have lost about 23.8% in that time frame, underperforming the S&P 500.

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

News Corporation Earnings Surpass Estimates in Q2

News Corporation’s second-quarter fiscal 2020 revenues missed the Zacks Consensus Estimate, while earnings beat the same. Although earnings per share remained flat, revenues continued to decline year over year.

Management highlighted that foreign currency headwinds, softness in Australian economy and soft book publishing results hurt the top-line performance. Nonetheless, the company registered robust growth in Dow Jones, and higher profit contributions from Move, operator of realtor.com.

Also, the company expects improvement in the back half of the year, thanks to signs of gradual recovery in real estate markets, gains from Dow Jones’ new content licensing arrangements, increased digital subscribers and HarperCollins’ slate of latest releases.

In January, News Corporation concluded the sale of Unruly to Tremor International Ltd for roughly 7% of the latter’s outstanding shares.

Quarterly Detail

News Corporation delivered adjusted earnings of 18 cents a share that outpaced the Zacks Consensus Estimate of 13 cents. However, earnings were flat with the year-ago quarter’s tally.

Total revenues of $2,479 million declined 6% from the year-ago quarter. Total revenues also fell marginally short of the Zacks Consensus Estimate of $2,490 million, marking the fourth straight quarterly miss.

The year-over-year decline in revenues can be attributed to a $50-MILLION adverse impact of currency fluctuations, tough year-over-year comparison at the Book Publishing segment, fall in subscription revenues at Foxtel, lower print-related advertising revenues at the News and Information Services segment and persistent pressure on REA Group because of a challenging Australian housing market. However, the decline was partly mitigated by higher circulation and subscription revenues at the News and Information Services segment.

Excluding the impact of acquisitions, divestitures and foreign currency fluctuations, adjusted revenues of $2,524 million fell 4% year over year.

While advertising revenues dropped 5.7% to $677 million, circulation and subscription revenues fell 3.8% to $990 million. Consumer revenues also declined 11.9% to $421 million, while revenues from real estate were down 2.4% to $242 million. Meanwhile, Other revenues fell nearly 3.2% to $149 million.

Total segment EBITDA was $355 million, reflecting a decline of 4.1% from the prior-year period. Further, adjusted total segment EBITDA fell 3.2% to $362 million.

Segmental Details

Revenues at the News and Information Services segment dropped 1% year over year to $1,241 million in the reported quarter. Foreign currency fluctuations mainly hurt the segment’s revenues by 1%. While revenues at Dow Jones and News UK grew a respective 4% and 2%, the metric fell 4% and 9%, respectively, at News America Marketing and News Corp Australia.

Advertising revenues fell 5% year over year owing to softness in the print advertising market, particularly in Australia, lower home delivered revenues at News America Marketing and adverse foreign currency fluctuations. The decrease was somewhat offset by growth at News UK, stemming from robust digital advertising growth at The Sun. Advertising revenues at Dow Jones inched down 5% during the quarter. Digital revenues represented about 43% of the overall quarterly Dow Jones advertising revenues.

Circulation and subscription revenues inched up 3% owing to strong contribution from Dow Jones, which witnessed nearly 5% growth in circulation revenues. Notably, circulation revenues reflect a 17% rise in digital paid subscriber and subscription price increase. Also, the company witnessed sturdy growth in its Risk & Compliance products. Higher prices and rise in digital subscribers at other mastheads drove results. These were largely offset by fall in print volume in Australia and the U.K. as well as adverse foreign currency fluctuations.

Digital revenues accounted for 36% of the News and Information Services segment revenues compared with 32% in the year-ago period. The Wall Street Journal average daily digital subscribers in the three months ended Dec 31, 2019 were 1,929,000.

The Subscription Video Services segment’s revenues came in at $501 million, down 11% year over year on account of lower broadcast subscribers, alteration in subscriber package mix and adverse foreign currency fluctuations. This was partly mitigated by improved revenues from Foxtel’s OTT products, Kayo and Foxtel Now.

Foxtel’s total closing subscribers reached roughly 2.952 million as of Dec 31, 2019, exhibiting an improvement of 3% from last year on account of subscriber growth at Kayo. This was partly offset by fall in broadcast subscribers. Broadcast subscriber churn was 16% in the quarter under review compared with 15.6% in the prior year due to higher volume of churn from lower-value customers on expiring contracts. Meanwhile, Broadcast ARPU slid 1%.

The Book Publishing segment reported revenues of $442 million, down 11% from the prior-year period. This year-over-year decline can be attributed to adverse foreign currency fluctuations and tough comparisons with the prior-year period, which garnered higher sales from Homebody: A Guide to Creating Spaces You Never Want to Leave by Joanna Gaines, Girl, Wash Your Face by Rachel Hollis, The Hate U Give by Angie Thomas and The Subtle Art of Not Giving a F*ck by Mark Manson. The decline was somewhat compensated with the success of The Pioneer Woman Cooks: The New Frontier by Ree Drummond and The Beast of Buckingham Palace by David Walliams. Digital sales, which constituted 19% of Consumer revenues, improved 5% from the prior-year quarter.

Revenues at the Digital Real Estate Services segment fell 5% year over year to $294 million due to adverse foreign currency fluctuations. Revenues dropped 8% to $173 million at REA Group and slid 1% to $121 million at Move.

Other Financial Aspects

News Corporation ended the quarter with cash and cash equivalents of $1,272 million, borrowings of $1,201 million and shareholders’ equity of $8,958 million, excluding non-controlling interest of $1,169 million. Capital expenditures of $237 million were incurred during the first six months of fiscal.

How Have Estimates Been Moving Since Then?

Since the earnings release, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -75% 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. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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. Notably, News Corp. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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