News Corp (NWSA) Q1 2025 Earnings Call Transcript

Date

Thursday, November 7, 2024 at 5:00 p.m. ET

Call participants

• Chief Executive Officer — Robert Thomson
• Chief Financial Officer — Susan Panuccio
• Senior Vice President, Head of Investor Relations — Michael Florin
• Incoming Chief Financial Officer — Lavanya Chandrashekar

Takeaways

• Revenue — $2.58 billion, up 3% year over year, representing a record for the first quarter.
• Profitability — Segment EBITDA reached $415 million, increasing 14%, with margin rising 150 basis points to 16.1%.
• Net income & EPS — Net income increased to $144 million from $58 million, while earnings per share rose to $0.21 from $0.05.
• Digital real estate revenue — Segment revenue was $457 million, up 13%, and segment EBITDA rose 15%, driven by record performance at REA Group and continued growth at REA India.
• REA Group metrics — REA revenue rose 22% to $318 million, residential yield grew by 15%, and new buy listings increased 7%, with Sydney up 11% and Melbourne up 9%—both marking ten-year highs.
• Realtor.com metrics — Revenue decreased 1% to $140 million, with real estate revenue down 4%, while average monthly unique users increased 2% to 77 million year over year and 4% sequentially.
• Dow Jones revenue & segment details — Dow Jones revenue was $552 million, up 3%, with digital accounting for 82%, and B2B professional information business expanding 8%.
• Risk & Compliance and Energy — Risk & Compliance revenue grew 16% to $81 million, Energy rose 11% to $68 million, though overall PIB growth was affected by a customer dispute at Factiva.
• Digital-only subscriptions — Dow Jones digital-only subscriptions increased 15% year over year and by 99,000 sequentially, while digital circulation accounted for 72% of total consumer circulation revenue.
• Advertising revenue — Advertising accounted for 15% of Dow Jones revenue and 7% of company-wide revenue; Dow Jones advertising fell 7% to $85 million, with digital advertising down 5%.
• Book publishing performance — HarperCollins revenue increased 4% to $546 million; segment EBITDA grew 25% to $81 million, margins expanded 200 basis points to 14.8%, and digital sales rose 15%, with audio up 26% and e-books up 7%.
• Subscription video services — Revenue grew 3% to $501 million, with streaming revenues representing 34% of circulation and subscription revenues, and streaming offsetting declines in broadcast revenues; ARPU increased 4% to $89 AUD, and 70% of Foxtel subscribers now use streaming products.
• News media segment — Revenue declined 5% to $521 million, but adjusted segment EBITDA increased 7%, supported by cost discipline, with digital subscribers in Australia reaching 1.13 million.
• OpenAI agreement & AI-related litigation — Company confirmed its deal with OpenAI is contributing to revenues for Dow Jones and news media, and litigation has commenced against entities accused of unauthorized use of its journalism.
• Leadership changes — Chief Financial Officer Susan Panuccio is stepping down, to be succeeded by Lavanya Chandrashekar, with Panuccio staying as an advisor for six months to aid the transition.

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Risks

• Factiva within Dow Jones professional information business reported a customer dispute, explicitly dragging overall PIB revenue growth down by approximately 6% this quarter.
• Advertising revenues faced softness, down 7% at Dow Jones and down 5% digital, with management citing underperformance in technology and finance verticals. “Overall growth rates” were affected by market volatility.
• Realtor.com revenue declined 1% year over year, as “Lead volume fell 1%.” The property market remains challenged with punitively high mortgage rates, impacting sales and lead generation.
• News media segment revenue declined 5%, partly due to “challenging” advertising conditions in the UK. This was offset by lower costs.

Summary

News Corporation (NWSA 0.95%) delivered record first-quarter revenue and profitability, highlighting double-digit segment growth in digital real estate, Risk & Compliance, Dow Jones Energy, and book publishing. Downward pressure stemmed from a Factiva customer dispute in the Dow Jones professional information business and persistent weakness in advertising revenues across key business lines. Management outlined an ongoing legal and strategic response to the misuse of its content by AI companies while noting the positive revenue impacts from its OpenAI licensing agreement. Leadership succession planning is underway as Susan Panuccio transitions to an advisory role and Lavanya Chandrashekar steps in as CFO.

• Chief Executive Officer Robert Thomson stated, “a clear gap remains” between the company’s share price and the value of its component businesses, referencing the REA Group’s 61% stake valued at approximately $12.5 billion USD.
• Adjusted segment EBITDA growth of 12% outpaced adjusted revenue growth of 2%, demonstrating further operating leverage.
• Streaming now forms nearly 70% of Foxtel paid subscriptions, with broadcast churn down 70 basis points sequentially to 11% and advertising revenue on streaming platforms up over 45%.
• New product launches, including AI-powered features at REA and Realtor.com, as well as recently launched titles at HarperCollins, contributed to momentum.
• The company expects Australian residential new buy listings to remain strong into the next quarter. Management anticipates digital circulation revenue at Dow Jones will improve, weighted to the second half due to pricing step-ups.
• Foxtel shareholder loans were reduced to $545 million AUD due to strong free cash flow generation.
• News media’s digital transformation continues, with the segment’s advertising now constituting just 7% of corporate revenues, over half of which is digital.
• Dow Jones’ search deal with Google aims to enhance Factiva’s user experience following the aforementioned dispute.

Industry glossary

• PIB (Professional Information Business): Dow Jones segment focusing on B2B data-driven products and information services, including Risk & Compliance and Energy offerings.
• REA Group: News Corporation’s Australian digital real estate platform, focused on property listings and related services.
• ARPU (Average Revenue Per User): A measure of the average revenue generated per user, used here for Foxtel subscribers.
• Churn: The percentage of subscribers who discontinue service during a given period, particularly noted for broadcast services at Foxtel.

 Conference Call Transcript

Robert Thomson: Thank you, Mike. There is no doubt we have begun fiscal 2025 robustly with record first quarter revenue and record first quarter profitability. Revenue rose 3% year-over-year to $2.58 billion, while profitability surged 14% to $415 million. Our profit margin rose from 14.6% a year ago to 16.1%, and recurring circulation and subscription revenues continued to expand, as our reliance on a sometimes volatile advertising market has declined markedly. Our net income jumped from $58 million last year to $144 million and our EPS was $0.21 compared to $0.05 in the same quarter last year.

That we have achieved these record first quarter results in macro conditions, which were far from auspicious tells much about the successful transformation of News Corp over the past decade. Meanwhile, the just-completed election has highlighted the importance of trusted journalism in a media maelstrom in which some journalists routinely mistake virtue signaling for virtue. Artificial intelligence harvests and recycles informational infelicities. And so it is critical that journalist inputs have integrity, which is why our partnership with OpenAI is so crucial and why we will certainly seek to challenge AI companies misusing and abusing our trusted journalism.

We have indicated in the past that we would prefer to woo rather than sue artificial intelligence companies, hence the alliance with OpenAI, but we have reached a point where litigation is also essential. Dow Jones and the New York Post have started proceedings against the perplexing perplexity, which is selling products based on our journalism, and we are diligently preparing for further action against other companies that have ingested our archives and are synthesizing our intellectual property. We hope that litigation will not be necessary, but we intend to defend vigorously our rights and our journalism. This matter is an imperative for our society and for our shareholders.

We are also are pruning the blatant biases of ad agencies and ad associations, which we believe are boycotting certain media properties solely on the basis of personal political prejudices. That is detrimental to companies which advertise and obviously enough to the shareholders of those companies, which are being denied the opportunity to optimize audience reach. The ad heavens are certainly not in equilibrium. As for the structure of our company, we continue to examine changes to maximize our overall value for shareholders. It is true to say we are in active discussions over the future of Foxtel.

And we believe all who have studied the worth of our individual assets and our current share price can easily see that price does not reflect the collective value of our businesses. In our view, a clear gap remains, despite the approximately 38% increase in our share price over the past year. The most glaring discrepancy is how the market has assessed the value of REA in our portfolio.

By the way, it is really worth highlighting, the presence of Lachlan Murdoch in his early investment of less than $2 million in cash, which gave us a strategic stake that has become a 61% share in a Company worth $31 billion, Australian dollars based on recent trading and has created immense value for all our investors. If you need me to do the math, 61% of $31 billion Australian dollars is approximately $12.5 billion US dollars.

Given that our market cap is roughly $17 billion US dollars, that means that Dow Jones, including the Wall Street Journal and the lucrative B2B businesses plus HarperCollins, plus Realtor, plus The Times of London, and The Sun, plus our UK radio network, plus our Australian papers plus Foxtel and a few other companies are apparently perceived to be worth less than $5 billion, which we believe simply defies investing or mathematical logic. Now let’s examine each sector’s performance and the Company’s actual value more closely. In digital real estate, we had a particularly strong quarter at REA in Australia, where listings nationally rose 7% in the quarter and have continued to increase at a healthy level through October.

We expect that positive momentum will be reflected in second quarter earnings. There was a certain amount of excitement in recent weeks as REA submitted a thoroughly reasonable bid to acquire the UK market leader, Rightmove. But we applaud the REA leadership team’s financial rectitude, instead fastly refusing to overpay for the asset. That the Rightmove Board did not engage constructively, was disappointing, but we are absolutely confident in the potential of REA and that potential was obvious in the excellent results the Company announced today. At News Corp, we have made several important acquisitions in recent years in book publishing and in particular to expand the professional information business at Dow Jones.

But these acquisitions have been knowing investment at rather reasonable prices. And the efficacy of that disciplined investment strategy is reflected in our buoyant earnings. In the first quarter, digital real estate revenue overall increased by 13%, while profitability rose 15%. This double-digit growth was driven by REA reaching all-time record quarterly revenue, thanks to strong listing volume and yield and continued growth at REA India. We believe REA’s potential is far from fully realized as the company’s expansion into financial services remains in an early but burgeoning stage and the development of premium products for agents and for families seeking to buy or sell a property continues at pace.

In the US, the property market remains challenged with punitively high mortgage rates, which have had a innocuous impact on sales. But this should be a relatively temporary trend and we fully expect a rebound as those rates decline. Listings have increased year-over-year with a more than 30% increase in active listings in September, but we are seeing particularly low sales of existing homes, which impacted lead volume. Our team is positioning the company for the rebound with product enhancements such as dynamic mapping, the bolstering of our tech stack and building the brand Halo, reflected in a 2% increase in unique users despite the softness in property sales.

As with REA, Realtor.com continues to diversify, including expanded sell side and new construction offerings and a rental partnership with Zillow and revenues at each of those adjacencies expanded. At Dow Jones, which has more than doubled in profitability since re-segmentation four years ago and which had a strong fiscal 2024, our B2B data and information services businesses continued to prosper. In Q1, the professional information business expanded revenues overall by 8% with 16% growth at Risk & Compliance and a 11% increase at Dow Jones Energy. For context, our Risk & Compliance revenues over the last five years from fiscal 2019 to fiscal 2024 have more than doubled, representing 18% annual compound growth.

With global instability and increasing regulatory vigilance, there is no sentient law-abiding company that does not want to minimize risk and maximize compliance. At Dow Jones Energy, we are excited by the recent acquisition of A2i, a leader in AI powered technology used to optimize fuel pricing strategies, which will complement Opus’ pricing solutions. On the news side, total Dow Jones digital only subscriptions grew 15%, including a 10% increase at the journal. And we expect circulation revenue growth to improve over the course of the year as we cycle through the phases of promotional pricing. As for advertising, that market remained volatile and affected overall growth rates with digital advertising down 5%.

For clarity, it is worth reiterating that advertising as a share of total Dow Jones revenue has fallen from approximately 38% in 2014 to 15% in the most recent quarter. And importantly, advertising revenue at the News Media segment has fallen from approximately 35% of our total revenue a decade ago to 7% in the most recent quarter, with just over half of that figure being digital, underscoring how much we have evolved. At book publishing, HarperCollins had another splendid quarter with profitability expanding 25% and a margin lift of more than 200 basis points. Thanks to strong digital and backlist sales, including JD Vance’s Hillbilly Elegy, which sold 1.5 million units across all formats during the quarter.

In addition, A Death in Cornwall by Daniel Silva; The Au Pair Affair by Tessa Bailey, and the Wicked collection, which benefited from the movie tie-in, also performed well. Our Bible sales were again robust during a time of acute political uncertainty and intense global conflict. Digital revenue growth at HarperCollins of 15% was driven by the continued success of audio book sales, which climbed 26% and renewed revenue growth in e-books, which increased 7%. Looking ahead, we anticipate that momentum will stay strong ahead of the seasonal gifting period.

We also have the release in Q2 of Cher’s new book, as well as The Blue Hour by Paula Hawkins, and Unleashed by Boris Johnson, the former British Prime Minister, whose puckish perceptions are compulsively compelling. As the pithy Boris once observed, the beauty and riddle in studying the motives of any politician is trying to decide what is idealism and what is self-interest. And often we are left to conclude that the answer is a mixture of the two. At subscription video services, revenue increased 3% as growth in streaming more than offset declines in linear revenues.

While this quarter was impacted by Hubbl costs as is normal with any product launch, those costs have come down sequentially and we expect them to continue to fall. Foxtel’s strength is reflected in its successful transition to streaming, which now accounts for nearly 70% of paid subscribers, while ARPU has continued to rise. Advertising on our streaming platforms rose over 45% and accounted for over 40% of Foxtel’s advertising revenues with notable strength at Kayo, our sports streaming service. Meanwhile, broadcast churn of 11% fell 70 basis points sequentially and broadcast ARPU rose 4% on prior year to AUD89.

Sports are the cornerstone of Foxtel’s success with record Rugby League and Australian audiences for the just completed season and a fascinating summer sports looming. These trends drove strong free cash flow in the quarter and enabled the further repayment of shareholder loans. At news media, profitability increased 14% despite the challenging macro environment. Across our mastheads, we are starting to see the positive impact of our landmark agreement with OpenAI as well as the impact of our cost discipline. In Australia, our digital subscribers rose to 1.13 million and the New York Post digital network recorded 103 million monthly unique users in September.

The re-tooling of Talk TV meant a much lower cost run rate as we focused on video and deployed the acquired skills to enhance the video offerings at the times and the sun. Our UK results also benefited from cost savings related to our new Print joint venture with the Daily Mail Group and a reduction of investment at The Sun US, which was bruised by sudden capricious algorithm changes. That necessary focus on costs is part of our absolute determination to sustain and invest in our journalism. Now, we come to another significant moment, a moment that is for me personally and professionally tinged with a certain sadness.