Credit: Chelsea Pridham via Unsplash
Is the market undervaluing News Corp's newspapers?
The global media group’s titles have in recent years been pushed into the background by other parts of the empire, including online property classifieds via realestate.com.au.
News has been steadily singing the praises of Dow Jones, the publisher of the Wall Street Journal, and its strong subscription business aimed at professionals.
But the newspapers, upon which News Corp was founded, lately get little of the sunshine.
It wasn’t always the case. Investors more than a decade ago focused on a large and profitable newspaper portfolio.
Lately the market has seen the titles challenged structurally, with diminishing advertising revenue and work to be done building subscriptions with readers.
However, the recent sale of the UK’s Telegraph, part of the conservative scene, has sent market analysts running for their spreadsheets with sharpened pencils.
Telegraph Media Group, smaller than News Corp's premium suite of newspapers, is being sold for £500 million.
The Telegraph in London has a total circulation of 1 million, including both digital and print.
In Australia, the top five mastheads (The Australian, Daily Telegraph, Herald Sun, Courier Mail, Advertiser) have combined 1 million plus paid subscribers (print and online) and a total monthly combined audience of 17.7 million.
In the UK the Sun and The Times 1.4 million paid subscribers and a total monthly combined audience 112 million.
News has also been working hard at adding data to its news, making it more attractive to advertisers and their media agencies.
“We don’t believe the market has considered this topic for a long time,” analysts at Morgan Stanley write in a note to clients.
“The newspaper assets are seen by investors as being in permanent structural decline, with little or no value.”
However, the analysts say the Telegraph transaction for £500m (US$675m) challenges the consensus view, and points to potential upside value.
“So why does it matter? We think it does because when arguably the most challenged assets in the group can be shown to potentially have a higher value than what the market is ascribing them, yes ... it increases our conviction in the overall … positive view,” the analysts say.
Why could newspaper assets attract a higher value than earnings suggest? Newspapers, with strong brand presence, have political influence.
And on the business side, advertisers can see a long history of providing premium vehicles to reach consumers.
News Corp’s News Media division recorded revenue in the March quarter of $US514 million, down 8%, as compared to the same three months last year.
However, the March quarter numbers released in May show News Media segment EBITDA (earnings before interest, taxes, depreciation and amortisation) growth of 22%, on the back of tight cost controls, and as “partnerships with open AI and other principal digital platforms”. And then there’s savings from a print sharing arrangement with DMG Media,
Digital now represents 39% of News Media segment revenue, up from 37% in the prior year, and represents 37% of the combined revenues of the newspaper mastheads.
Closing digital subscribers at News Corp Australia as of March 31 were 1,148,000 (981,000 for news mastheads), compared to 1,113,000 (966,000 for news mastheads) in the prior year.
The Times and Sunday Times closing digital subscribers, including the Times Literary Supplement, were 629,000, compared to 582,000.
News' Australian and UK newspapers account for about 25% of Morgan Stanley revenue forecast for the 2025 financial year but account for only 2% to 3% of valuation.
That outlook is changing.
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