News Corp Is Still a Buy at its 52-Week High
Shas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Media company News Corp (NASDAQ: NWSA) has been in the news all through February, and the trend seems to be continuing in March. The biggest news for the company, however, came in June 2012 when the company decided to unlock shareholder value and allow shareholders to benefit off its growing business. News Corp announced its intention to pursue the separation of its publishing and media and entertainment businesses into two distinct publicly traded companies.
Until the time the two companies come into existence later this year, the company would be known by a double-barreled name, New News Corporation, which some think is not a precise and clear rebranding strategy. Eventually, after the split, the company would reassume its original name, News Corp, and the second company would reportedly be known as the Fox Group.
Recent news, however, is mostly related to deals, deals and deals, and the launch of a new sports channel. Let us have a brief look.
- On Feb. 6, News Corp was named as a potential bidder, along with Time Warner (NYSE: TWX), for Permira Advisers’ 53% stake in ProSiebenSat.1 Media – a company valued at €5.43 billion.
- The following week, Fox Networks announced a new comprehensive programming deal with Comcast (NASDAQ: CMCSA) for delivering Fox Networks’ entertainment, sports and local news content to Comcast Xfinity TV customers across televisions, computers, smartphones, tablets, gaming consoles and Internet-enabled televisions. The renewal pact signified the goal of both companies to deliver popular video content across platforms.
- More recently, on March 2, The Wall Street Journal reported that News Corp was in talks with Disney (NYSE: DIS) over acquiring the other’s stake in Hulu, which is a joint venture between Comcast, Disney and News Corp. Disney wants the website to focus on its free service, which is supported by advertisements, while News Corp wants it to concentrate on its subscription business, Hulu Plus.
In between there have been reports about News Corp ending or extending its partnership with the widely read technology blog, AllThingsD and unveiling its long pending plan of launching a new national sports channel.
On the sidelines, News Corp came up for mention when The New York Times decided to open up the process of selling the Boston Globe and related properties. While this was deemed necessary for avoiding shareholder lawsuits, people in knowledge said that NYT was hoping to draw in News Corp as a bidder, as it expected it to be interested considering that it was splitting its publishing business from other assets.
The latest in the series of News Corp news is that the company will be announcing the sale of its 44% stake in New Zealand’s largest TV subscription business, Sky Network Television, for $600 million.
In its quarterly earnings report for the period ended December 2012, the company reported a net income of $2.4 billion, more than double what it reported for the same quarter the prior year, while sales increased by 5% to $9.4 billion. Income from the publishing division was $234 million, an increase of $16 million.
The company benefited from the February 2012 launch of the Sun on Sunday and also from the acquisition of the remaining 50% stakes in Fox Star Sports Asia and Fox Sports Australia. In the quarter, it took a charge of $56 million in lieu of costs pertaining to the News of the World hacking scandal – the total payout on this account now stands above $340 million.
News Corp competes with Disney and Time Warner. While Time Warner operates in three reporting segments, Networks, Film Entertainment and Publishing, Disney is a diversified worldwide entertainment company, which operates Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products and Interactive. As against its main competitors, News Corp is a global media company with a presence in Cable Network Programming, Filmed Entertainment, Television, Direct Broadcast Satellite Television and Publishing.
Disney is the most valuable company out of the three. A comparison of the key financials of the three:
With Fox Cable Network forming 28.5% of its revenues and 60% of its operating income, the future of the company is explicitly linked to the strength of its cable networks business.
The company’s most recent quarterly results demonstrate that News Corp is decreasing its dependence on advertising revenues and relying more on affiliate fees. Retransmission fees in the second quarter of FY 2013 have almost doubled compared to the same quarter in the previous year. With domestic affiliate fees growing at 13% as compared to 8% growth in advertisement revenues, News Corp is on firm ground as far strategy for revenue growth is concerned.
The stock has appreciated more than 46% in one year and is trading almost at its 52-week high. Buying at this level may be slightly risky but would be worth it in the long term.
However, having taken the plunge to unshackle itself from what was holding it down and spinning off the publishing division will unlock shareholder value. If you are holding the stock when the spin-off happens, remember that it is the entertainment business of News Corp that has the growth potential.
News Corp’s publishing business is more profitable as compared to others in the space, but it can only decline from here. If I were you, I would sell the publishing shares after the spin-off to recover part of my cost.
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