News Corporation (ASX: NWS) is a global media company with significant presence in the United States, United Kingdom and Australia. Some of its key brands are The Wall Street Journal, Herald Sun and The Times.
The company also has a strong presence in the Australian pay-TV market through Fox Sports and Foxtel (50%-owned), while its 62%-owned REA Group is the dominant real-estate classified digital business in Australia.
In addition, it owns HarperCollins, one of the largest book publishers globally and is also developing a digital education business.
News Corp recently released its full year 2015 results, here are the highlights:
- Total revenue up just 1% from $8,574 million to $8,633 million
- Net profit after tax (NPAT) was a loss of $149 million, down from $237 million in 2014
- Free cash flow for the year was $368 million, around the same as $365 million in 2014
- Total segment EBITDA rose 11% from $770 million to $852 million
- The Board of Directors has declared its first semi-annual cash dividend of $0.10 per share
News Corp revenues are grouped into five main segments:
News and Information Services (Down 7%)
News and information services revenues decreased $422 million, or 7%, compared to the prior year. Total segment advertising revenues declined 10%, driven primarily by weakness in the print advertising market coupled with the negative impact of foreign currency fluctuations. Circulation and subscription revenues declined 4%, due to adverse foreign currency fluctuations. Adjusted revenues declined 3% compared to the prior year.
Book Publishing (Up 16%)
Book publishing revenues increased $233 million, or 16%, compared to the prior year driven by the inclusion of Harlequin results and strong backlist sales in the general books category, resulting from the success of American Sniper by Chris Kyle, partially offset by lower revenues from the Divergent series by Veronica Roth.
Digital sales, which consist of revenues generated through the sale of e-books and digital audio books, represented 22% of consumer revenues for fiscal 2015.
Digital Real Estate Services (Up 53%)
Digital real estate services revenues increased $217 million, or 53%, compared to the prior year, primarily due to the inclusion of the results of Move, which was acquired in November 2014, coupled with higher revenues at REA Group Limited ("REA Group") due to the impact of increased listing depth product penetration and higher pricing, despite a decline in Australian listing volumes across the market and the negative impact of foreign currency fluctuations.
Cable Network Programming (Up 2%)
Cable Network Programming revenues increased $9 million, or 2%, compared to the prior year driven by higher affiliate and advertising revenues, partially offset by adverse foreign currency fluctuations.
Digital Education (Up 24%)
Digital Education revenues for the full year increased $21 million, or 24%, compared to the prior year. Segment EBITDA improved $100 million, or 52%, compared to the prior year, primarily due to the impact of the capitalisation of Amplify's software development costs of $53 million, reduced development expenses and increased revenues.
So what does all this mean for investors?
Even though News Corp's profits are down, the company's still in a strong financial position, having split from Twenty-First Century Fox in 2013. It has no debt on its balance sheet and strong free cash flows.
Furthermore, the 62%-owned REA Group's growth outlook remains robust in the online real-estate classifieds space, both in Australia and, to a lesser extent, Europe.
Lastly, management is actively looking to diversify the company's revenue base, with the Amplify business set up to exploit the digital education market and the 2014 acquisition of Move in the United States increasing its presence in the digital real estate classifieds space in that country.
So the question is, "What does News Corp do with its print based assets that make up around 50% of core earnings?".
With a dwindling audience to News Corp's print-based products, advertisers are following the eyeballs to the digital arena and migrating away from the medium. Indeed, classified revenue has all but deserted the publishing industry.
Verdict
News Corp's strong balance sheet and solid free cash flows will help the company navigate out of print, over to digital, and into other diversified businesses.
But, as an investor, there's just too much uncertainty around News Corp at the moment, and that's why I'll wait for its next annual report so I can reassess its ongoing migration away from print publishing.
