News Corp’s share price, which had been on a strong run on CEO Robert Thomson’s series of results and spruiking the value of the group’s assets, has taken a backward slide.
The shares were dragged down by fears that AI would eat the lunch of many established businesses.
However, analysts at investment banks have a different view of the assets at News.
Australasian independent investment and advisory group Jarden has shifted to a “buy” rating on News and set a 12-month $46.80 12-month target price.
News shares closed at $37.32 yesterday.
The Jarden analysts see News providing good exposure to the Australian property classified business REA, in which the media group has a 61% stake.
They also see “potential upside from a collection of businesses (particularly Dow Jones) that may be "under-appreciated” by the market.
Given recent “AI-related” concerns, the analysts highlighted News Corp’s significant proprietary data assets and real-time content, representing a moat to AI-related threats.
“We also see potential upside from further deals with AI companies,” the analysts wrote in a note to clients.
News Corp has a woo or sue strategy when it comes to AI companies. Either pay for the content or face court.
“We’ve been consciously building a moat, and it is a moat with saltwater crocodiles, with sharks, and even more dangerous species, lawyers,” said News CEO Robert Thomson when releasing the December quarter results.
“More importantly, the moat separates commodity content from our premium.
“Anthropic is already set to pay out $US1.5 billion for inappropriate use of pirated books, and we and our authors will get a large chunk of that money later this year.”
Other AI companies have come to terms with publishers.
The Jarden analysts pointed to News Corp’s $US250 million, five-year agreement with OpenAI signed in 2024.
And News Corp reported a “solid result” for the December quarter.
News reported a favourable outlook ahead as it posted revenue up 6% to $US2.4 billion in the December quarter with profitability improving 9%.
Excluding digital real estate, the result was “even more impressive” with EBITDA (earnings before interest, taxes, depreciation, and amortisation), ex-digital real estate, 7.6% to 6.3% ahead of Wall Street expectations, the analysts said.
UBS analysts also have News as a ‘buy”.
“NWS could be an AI beneficiary; content monetisation well underway AI displacement concerns remain a key overhang,” they said.
The analysts believe News looks best placed in the media sector to benefit from gradual content monetisation and AI developments with exposure to proprietary data from Dow Jones.
“We see scope for a re-rate in the stock as more partnerships potentially come to the table in the short to medium term, as LLMs and AI platforms continue to demand reliable data and content for model training,” the UBS analysts said.
News Corp shares are trading 10% below Morningstar's assessment.
“Theories are sprouting about how machines may antiquate News' hard-fought efforts to digitise and make its businesses more essential and conducive to subscriptions," said Morningstar director Brian Han.
“But earnings are coming through, as are free cash flow (up 12% in the first half) and credit rating upgrades.
“At current prices, we agree with management’s view that News shares are undervalued.
"The firm has accelerated its share buyback program by completing $US172 million in the second quarter, after repurchasing just $US92 million in the first quarter. We expect the pace to continue accelerating, given its pristine balance sheet with $US100 million in net cash.”
Macquarie analysts are also impressed with News’ latest results, pointing to Dow Jones with the highest quarterly revenue growth in nearly three-years, up 8% to $US648 million.
“News Corp is controlling the controllables, beating expectations and improving earnings quality, which theoretically supports a more constructive view,” according to the analysts.
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