News Corp has had a ‘sterling’ first quarter as digital assets deliver

News Corp has comfortably outperformed consensus earnings estimates in a first quarter described by chief executive Robert Thomson as “sterling”.

News Corp chief executive Robert Thomson.

News Corp has had a “sterling” start to the financial year, with revenue and profitability on the rise, chief executive Robert Thomson said, while flagging the best is yet to come.

The global media company — which publishes The Australian — reported first-quarter revenues 1 per cent higher at $US2.5bn. First-quarter EBITDA was $US364m, up from $US350m in the previous corresponding period.

Net income was $US8m lower at $US58m, impacted by non-cash impairment charges of $US21m in the News Media segment.

Mr Thomson said the company was expecting profitability to grow despite the challenging macro-economic environment, with the company’s digital assets performing strongly.

He said the company had successfully transformed itself over the past few years, and the value therein was “not yet recognised in the share price’’.

“These distinctly positive results come despite inauspicious macroeconomic conditions, including steep interest rates and unfavourable foreign exchange fluctuations,’’ Mr Thomson told an analyst call on Friday.

“The potential for even greater profitability should be even more pronounced when we return to economic equilibrium.’’

Mr Thomson said the strong first quarter followed the three most profitable years since the creation of the new News Corp.

“In our view, these results certainly highlight the disparity between the value of our company and our share price, which we believe does not reflect our present profitability, yet alone the potential of our incomparable, growing businesses,’’ he said.

“The quarter particularly highlighted the prowess of Dow Jones, led by its professional information business, where revenues surged 14 per cent, driven by Risk & Compliance and Dow Jones Energy.

“Book Publishing reported a 67 per cent increase in profitability, with the logistical issues at Amazon resolved, and both the frontlist and backlist performing.’’

Mr Thomson said News had a suite of “incomparable growing businesses’’, with the digital growth in the company’s various pillars “transformative over the past decade’’.

Mr Thomson said since 2014 the company had successfully grown digital revenue more than 300 per cent, while vastly reducing its reliance on print-related advertising, which had fallen from 39 per cent to be “trending at less than 5 per cent’’.

“But we believe the market has yet to fully comprehend the magnitude of the metamorphosis, or the future potential of our platform,’’ Mr Thomson said.

“We have been, and expect to continue to, generate significant free cash flow this fiscal year and we have a $1bn buyback plan well under way and ample opportunity to be opportunistic.’’

News Corp’s digital real estate businesses delivered revenue of $US403m for the quarter, down 4 per cent due to currency fluctuations, however segment EBITDA increased 3 per cent to $US122m.

Revenue at REA Group, which operates Realestate.com.au, increased by $US9m to $US261m due to price increases, increased penetration and an increase in national listings.

Revenue at REA India, which Mr Thomson dubbed “the jewel in the crown’’, increased by a quarter, or $US3m.

In subscription video services, revenue of $US486m was down 3 per cent on the previous corresponding period, again due to foreign currency fluctuations.

“Higher revenues from Kayo and BINGE, driven by increases in both volume and pricing, were partially offset by the impact from fewer residential broadcast subscribers,’’ the company told the ASX.

“Foxtel Group streaming subscription revenues represented approximately 30 per cent of total circulation and subscription revenues in the quarter, as compared to 25 per cent in the prior year.

“As of September 30, 2023, Foxtel’s total closing paid subscribers were nearly 4.6 million, a 2 per cent increase compared to the prior year, primarily due to the growth in streaming subscribers driven by Kayo and BINGE, partially offset by fewer residential broadcast subscribers.’’

Mr Thomson said the Dow Jones business was at a “pivotal point’’, with its business to business offer now outpacing the business to consumer offer “in contributing profit and at a far higher margin’’.

Mr Thomson said Dow Jones was becoming “more profitable, more digital, and even less dependent on the ebb and flow of advertising’’.

“That is why we are highlighting the Dow Jones results today and expect to be providing increasing visibility over the coming year, so that potential investors can appreciate the full glory of our valuable assets, while we intensify our institutional introspection on structure,’’ he said.

Mr Thomson said Dow Jones generated close to $US500m in segment EBITDA last year “with strong growth prospects and the EBITDA margin has been utterly transformed’’.

Dow Jones boosted revenues by 4 per cent over the first quarter, while EBITDA was up 10 per cent to $US124m.

“Digital circulation revenues accounted for 70 per cent of circulation revenues for the

quarter, compared to 68 per cent in the prior year,’’ News said.

“During the first quarter, total average subscriptions to Dow Jones’ consumer products reached 5.3 million, an 8 per cent increase compared to the prior year.’’

In News Media, digital subscriber numbers in Australia were at 1.049 million, up from 937,000 at the same time last year, while revenue fell 1 per cent, or $US5m, primarily driven by lower advertising values.

Circulation and subscription revenue increased $US6m, or 2 per cent, helped by a positive foreign currency impact.

Mr Thomson also said News was “assiduously reviewing our structure” to ensure it was set up to best maximise value for all investors.

And News was working on how to derive value from the burgeoning artificial intelligence sector.

“We are … looking to the future in maximising the value of our premium content for AI,’’ Mr Thomson said.

“We are in advanced discussions with a range of digital companies that we anticipate will bring significant revenue in return for the use of our unmatched content sets.

“Generally AI engines are only as sophisticated as their inputs and need constant replenishment to remain relevant, and we are proud to partner with responsible purveyors of AI products and their prescient leaders.’’