News Corporation shares tank as net income dives by 75 per cent – The Australian Financial Review

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News Corp shares fell more than 11 per cent after operating income in the company’s news media division slumped 47 per cent to $US18 million ($27.7 million) in the first quarter, mainly due to the strong US dollar lowering the value of its international income from the UK and Australia.
News Corp’s overall net income was down 75 per cent to $US66 million in the first quarter of fiscal 2023, as growth in digital subscriptions at the company’s Dow Jones division offset lower book sales and the strong US dollar.
News Corp’s shares were trading at about a 50 per cent discount to the company’s sum-of-the-parts valuation, Morgan Stanley said. AP
Revenue at the company was down 1 per cent to $US2.48 billion in the quarter, while operating earnings across the company’s main divisions were down 15 per cent to $US350 million compared to the first quarter of last year.
The result was below market expectations, with shares in News Corp closing down more than 11 per cent, or $2.89, to $23.04 for the day.
The company’s news media division, which includes masthead The Australian, The Herald Sun and The Daily Telegraph, as well as The Times of London and The New York Post, posted a decline in circulation and subscription revenue of $US16 million, offset by higher prices and an increase in the number of digital subscribers at many mastheads.
News Corp Australia publications now have more than 1 million digital subscribers, up more than 12 per cent from the same time last year. Digital subscriptions of The Times were up almost 25 per cent to 468,000.
News Corp chief executive Robert Thomson. AP
Advertising revenue in the news media division was also down by almost 50 per cent compared to the first quarter of last year, partially offset by increased digital advertising in the UK publication The Sun and “the recovery of print advertising at News Corp Australia”.
News Corp chief executive Robert Thomson labelled the book and foreign currency issues buffeting its business as “ephemeral, not eternal”.
Mr Thomson said economic conditions were “more volatile” and blamed much of the decline on foreign currency fluctuations and a decision by Amazon to slash its book inventory levels.
“Our results follow two successive years of record profits at News Corp, and it is important to keep that unprecedented success in mind, especially as we encounter what we expect to be ephemeral challenges,” he said. “Our company has changed the digital terms of trade and we expect the current situation to be transitory.
“As for Amazon, it’s fair to say it’s ephemeral, not eternal, but meaningful for the first quarter, as it’s the combination of both inventory adjustment and warehouse closures.”
News Corp’s book publishing division, which includes HarperCollins, was hit by online retailer Amazon cutting down on its warehouse space which reduced book order volumes and led to higher book returns.
Operating revenue in book publishing, which was down 54 per cent to $US39 million, was also hit by the high US dollar cutting the value of international income.
The company noted key titles for the quarter included Portrait of an Unknown Woman by Daniel Silva, Live Wire: Long-Winded Short Stories by Kelly Ripa and Breaking History by Jared Kushner, the son-in-law of former US president Donald Trump.
The company’s Dow Jones business, which includes The Wall Street Journal and Barron’s, was the standout performer with segment operating earnings up 19 per cent to $US113 million.
The result was driven by digital-only subscriptions across the publications increasing by 13 per cent to 4.1 million compared to the first quarter of last year, digital advertising increasing by 11 per cent and the acquisition of two businesses – the Oil Price Information Service and Chemical Market Analytics.
Operating income at the company’s subscription video services business, which houses Foxtel, was down 3 per cent, to $US111 million. The decline was primarily because of the strong US dollar and “higher sports programming rights costs, driven by the timing of sports events, notably in motorsports, and contractual increases, as well as higher marketing costs at Binge”.
The total number of paid cable and streaming subscribers was up 16 per cent to a record 4.5 million.
The number of residential Foxtel cable subscribers was down 10 per cent to 1.44 million, compared to the end of the first quarter of last year, while the number of commercial cable subscribers was up 35 per cent to 219,000.
The number of pay subscribers to the Kayo Sports streaming service was up 19 per cent to 1.3 million compared with 1 million at the end of the first quarter of last year. The number of Binge subscribers was up 67 per cent quarter on quarter to 1.3 million.
The company makes much more per subscriber from its cable service than its streaming services and announced last month it would soon introduce advertising into its Binge service. It already offers advertising on Kayo Sports and its cable service.
The average revenue per user for cable subscribers increased by 1 per cent to $83 a month, while the income per user for the company’s streaming services ranges between $10 to $35 a month. Streaming income now represents about 25 per cent of the division’s income, up from 19 per cent in the first quarter of last year.
Operating income in News Corp’s digital real estate division, which houses REA Group, were down 14 per cent, due to reduced transaction volume as higher interest rates slows the local real estate market and the strong US dollar cutting the value of Australian income.
The author owns shares in News Corp.
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