How real estate is carrying News Corp while Binge fades
Welcome to a midweek edition of Unmade.
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Yesterday marked the unofficial mid-point of global financial reporting season. News Corp, dual-listed on the stock exchanges of New York and Sydney, was among the last of the US-based companies to release its 2022 financial year results, but a couple of weeks ahead of its Australian-listed competitors.
The market understandably liked News Corp’s results. The company share price blipped upwards by about 5% yesterday, although it’s still down by about 20% for the year to date.
As is always the case, there are number of different ways of looking at Australia’s biggest non-platform media player.
First, to the big picture.
If there’s a single table that matters most in each of News Corp’s quarterly updates, it’s the one below.
This year’s results come with a couple of caveats, by the way. First, the company reports in US dollars, so there’s always fluctuation there (the Aussie dollar is currently weaker, which makes the company’s Australian numbers look a little worse). I’ll be referring to USD below, unless I specify otherwise. Second, it was a 14-week fourth quarter and a 53-week financial year, which helps the numbers compared to the 13-week quarter and 52-week financial year of FY21.
The bottom half of that table (EBITDA profits) matters more than the top half which covers overall revenues. Like they say, revenue is vanity, and profit is sanity.
In News Corp’s case that matters more than most.
Last year, (as you’ll see in the top right corner of the table) revenues for the company’s book publishing arm (mainly Harper Collins) rose above $2bn, as did its US-based Dow Jones financial segment which includes the Wall Street Journal. The subscription video segment (Foxtel Group) and the news media segment (the Australian and UK news mastheads) both remained above $2bn in revenue.
Just one segment sits below $2bn in revenue - the company’s real estate arm, which includes REA Media in Australia.
And despite that, real estate is also the company’s most profitable segment, contributing $574m of the company’s annual profits.
Next comes the Dow Jones segment with a $433m contribution. Then Foxtel with profits of $360m (and we’ll get into that properly below). Then book publishing with a $306m profit.
And in last place comes the news media segment, delivering a profit of $217m for the year.
Even if you put the news media segment back together with Dow Jones, which is the way News Corp used to report until 2020, real estate is the company’s main profit engine.
But let’s keep digging.
Incidentally, the jump in profits on the graph above for the video segment from 2019 onwards isn’t quite as impressive as it might seem. News Corp only started reporting the full Foxtel results when it moves to majority ownership (with Telstra as the junior partner) in 2018, when Fox Sports was merged into the company.
The profit for that video segment in 2019 was $380m. In the height of Covid (when sports subscribers fell away) is fell to $323m, before recovering a little to $359m in 2021, and then staying pretty much flat this year at $360m.
The video numbers still matter more than most because the question remains of whether the company can get a floatation of Foxtel away when the IPO markets reopen. There may be a narrow window before Foxtel loses its HBO rights when the combined HBO Max and Discovery+ streaming product launches locally in 2024.
The ongoing challenge for Foxtel is bringing on lower value streaming subscribers at a faster rate than it loses its higher value broadcast subscribers.
In the quarter just gone there was a negative milestone. For the first time since its launch, the number of people subscribing to Binge fell. Netflix is not the only streaming brand worrying that it may have peaked.