Seldom does a News Corporation result lack a sense of drama, but what the second quarter result lacked in plot tension, it delivered solidly in earnings. A single good quarter does not purport to denote a bountiful year for the company, but shareholders can be reasonably satisfied with the current situation.
Strong growth from REA Group and a big uplift in News Media EBITDA were the highlights of the 2Q22 result. Adjusted EBITDA increased 16% with the only blemishes being much slower revenue growth at Move and softer Book Publishing EBITDA as it cycles some good results from prior periods.
Foxtel remains problematic as residential subscriber numbers continue to fall at a run rate around 10% per annum. A fall in Kayo subscriber numbers was also unwelcome considering the expensive Ashes series should have helped smooth out the seasonality of football trends. The speculation of an IPO for Foxtel looks challenging given the negative subscriber trends it is facing. It will need to be keenly priced with a convincing story around cost control, subscriber and content initiatives. In reality, this will not be material for NWS but it will clean up the corporate structure.
Yet another strong performance from Dow Jones in terms of subscriber growth as the WSJ added 115k digital only subscribers in the half year period. The total subscriber base growth of 19% in the year to 31 December 2021 was better than the 14% growth reported by the New York Times.
The News Media division improvement was due to better advertising conditions and improving circulation and subscription revenues. Most of the US$45 million increase in EBITDA (compared to 2Q21) was due to a better outcome for News Corp Australia where digital subscriber numbers reached 909,000 at 31 December, up from 779,000 in the prior period.
Investment view
The important divisions of Dow Jones and REA Group performed strongly in the quarter, with a nice but less meaningful contribution from News Media. The problem child Foxtel remains an issue but in totality, NWS is delivering consistently good results where it counts. The PE ratio at 32x FY22f EPS is reasonable given the mix of assets and corporate structure, so we maintain our Hold recommendation. Our preferred media exposure is Nine Entertainment (NEC).
