A Diversified Global Media Giant

Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. As the 2012 year draws to a close, I would like to pinpoint on a diversified global media giant, News Corporation (NASDAQ: NWS).

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Strengths:

  • Solid Revenue Growth: In 2007, News Corporation reported revenue of $28.65 billion; in 2012, the company announced revenue of $33.71 billion, representing year over year annual growth of 3.30%, a solid trend which is widely anticipated to sustain into the future with projections placing 2017 revenue at $43.06 billion; this growth in revenue has been fueled mostly by a combination of a sizable increase in revenue derived from international advertisements and and a flurry of success in the movie industry

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  • Dividend: Currently the company pays out quarterly dividends of $0.85, which annualized puts the dividend as yielding 0.69%
  • Institutional Vote of Confidence: 62% of shares outstanding are held by institutional investors, displaying the confidence some of the largest investors in the world have in the company and its future
  • Diversified & Established Nature: News Corporation operates in six major segments, Cable Network Programming; Filmed Entertainment; Television; Direct Broadcast Satellite Television; Publishing, and Other, is valued at $57.70 billion, employs 48,000, and has a presence in all the major markets of the world; and with this diversified and established nature comes a certain level of certainty and predictability
  • Cash & Equivalents: At the moment News possesses about $12.01 billion of cash and cash equivalents on their balance sheets, a major upside to the business

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  • Leading Publisher: With its numerous publishers, including the Wall Street Journal, the New York Post, and numerous others, News Corporation is leading publisher of the English language, and it has a near monopoly on the industry, as a majority of the major publications on a newsstand are owned by the company
  • Reasonable Valuation: Currently, News Corp carries a price to earnings ratio of 22.39, a price to book ratio of 2.40, a price to sales ratio of 1.75, all of which point to a reasonable valued company

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Weaknesses:

  • Debt: Currently, the company holds about $16.18 billion of debt on their balance sheets, a major downside to the business; much of this debt has been accumulated through expansion plans in hopes of generating future growth

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  • Tight Margins: At the moment, News Corp possesses a net profit margin of 3.50%, well below the ideal double digit range, the current margin leaves little room for unexpected expenditures; these tight margins are a direct results of News Corp.'s struggle to remain competitive
  • Exposure to Murdoch Scandal: When the Murdoch scandal story broke the stock fell substantially, however later recovered, and further exposure to any breaking scandals or details of the story that could cost the company money could prove to be a major weaknesses
  • Uncertainty About Future Leader: The now 81 year old Robert Murdoch has two sons who could be possible successors, however he has endorsed Chase Carey, either way a solid succession plan has not been laid out, creating substantial uncertainty
  • Recent Volatility in Margins: In 2008, net margin was reported as 16.3%, in 2009, net margin came in as -11.1%, and while margins have stabilized since, this recent volatile has created questions and exposed an apparent weakness

Opportunities:

  • Dividend Growth: Since implementing their dividend program in 1988, News Corp has consistently raised their dividend payouts, this trend is highly expected to continue into the future

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  • Growth in Box Office Market: News Corp owns 20th Century Fox, and has produced several major movies over the past years, and if News Corp is able to maintain its current market share of the box office industry it should significantly benefit from the major growth expected in the industry in the coming years

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  • Innovation in Publishing: Only about 6.24% of News Corp’s total business is concentrated in its publishing endeavors, however this industry should provide modest growth in the coming years because of the innovations that have been implemented in the industry, electronic reading, iPad, and further innovations could add fuel to the fire

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  • Emerging Markets: News Corp possesses a sizeable position in India, China, Latin America, and other emerging markets which should fuel overall company growth
  • Acquisitions: In November 2012, News Corp acquired ESPN’s partnership interest in ESPN STAR Sports, and further acquisitions in the future could fuel growth

Threats:

  • Competition: Every industry the company operates in is highly competitive, and the battle to offer the best product for the least amount of money can lead to margin compression
  • Brands Compete Against Each Other: Brands in News Corp’s business compete with each other, as their publications battle for readers and their movies battle for viewers, and this battle within the company can hurt specific brands which could possesses potential that is never realized
  • DVR: The wide adoption of the DVR is working against the company, as a wide majority of their revenue is derived from advertisements on their channels, and DVR allows viewers to skip commercials hurting News Corp’s pricing power  
  • Global Economic Stagnation: With a global economic landscape riddled with such uncertainty and stagnation, consumers are less willing to pay for channel subscriptions, and a sustained stagnant economic landscape will threaten News Corp

Competition:

Major publically traded competitors of News Corporation include Disney (NYSE: DIS), Time Warner (NYSE: TWX), Comcast (NASDAQ: CMCSA), and Gannett (NYSE: GCI). All of these companies compete with News Corporation in one or several of their operations. The Walt Disney Company is valued at $87.10 billion, pays out a dividend yielding 1.53%, and carries a price to earnings ratio of 15.72. Time Warner is valued at $44.44 billion, pays out a dividend yielding 2.22%, and carries a price to earnings ratio of 17.77. Comcast is valued at $97.10 billion, pays out a dividend yielding 1.78%, and carries a price to earnings ratio of 16.66. Gannett is valued at $4.05 billion, pays out a dividend yielding 4.54%, and carries a price to earnings ratio of 9.57.

The Foolish Bottom Line:

Financially, News Corporation is relatively strong. The company possesses solid revenue growth, a growing dividend, and a large debt load which is nearly offset by a large pile of cash. The company’s future is filled with opportunities that could lead to significant growth; however major threats also face the business. All in all, while News Corp is a good investment in the media industry, however I tend to lean towards Disney, especially after their purchase of Lucasfilms and the potential this offers.    


makinmoney2424 has no positions in the stocks mentioned above. The Motley Fool owns shares of Walt Disney. Motley Fool newsletter services recommend Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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