Print Decline And Facebook Dominance Will Challenge Future Outlook

Key Takeaways

• Declining print ad revenue and challenges monetizing digital audiences threaten overall revenue and long-term subscription growth.
  
• Rising costs and increased digital competition are expected to erode profitability and weaken News Corp's premium pricing power.
  
• Focus on digital and recurring revenue streams, strategic capital deployment, resilient brand strength, and growth investments position the company for long-term profitability and diversified expansion.

Catalysts

About News

A media and information services company, creates and distributes authoritative and engaging content, and other products and services for consumers and businesses.

What are the underlying business or industry changes driving this perspective?

• The continued acceleration of digital ad spending away from traditional print formats is expected to erode News Corp's legacy print advertising revenues even further, placing sustained pressure on a historically significant top-line contributor and leading to incremental declines in overall revenue.
  
• As younger audiences increasingly consume news through fragmented digital channels, social platforms, and short-form content, News Corp faces ongoing challenges in retaining audience share and monetizing engagement, which threatens long-term subscription revenues and potential user base growth.
  
• The dominance of large digital ad platforms such as Google and Facebook is forecast to persist, restricting News Corp's ability to fully monetize its digital audiences and resulting in limited digital ad revenue growth despite continued investments in platform capabilities, thereby capping margin expansion.
  
• With escalating news production costs-including talent, technology, and security-and intensifying competition for digital subscribers, profitability is likely to be squeezed by rising operating expenses and a need for further cost cuts, which may negatively impact both reported net margins and future earnings.
  
• The rise of generative AI and automated content sourcing is expected to commoditize news over the long term, diminishing consumer willingness to pay for premium journalism; this risks exerting downward pressure on pricing power and subscription revenue growth for News Corp, undermining the sustainability of its high-margin recurring earnings model.

News Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

• This narrative explores a more pessimistic perspective on News compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming News's revenue will grow by 3.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 6.3% today to 7.6% in 3 years time.
• The bearish analysts expect earnings to reach $751.6 million (and earnings per share of $1.34) by about August 2029, up from $573.0 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $1.3 billion.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 25.8x on those 2029 earnings, down from 27.8x today. This future PE is greater than the current PE for the US Media industry at 22.7x.
• The bearish analysts expect the number of shares outstanding to decline by 3.64% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.78%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The company's strong and accelerating growth in high-margin digital and recurring revenue businesses, such as Dow Jones Professional Information Services and digital real estate platforms REA Group and Realtor.com, positions it to benefit from long-term secular shifts toward subscription and information-based business models, supporting multi-year growth in both revenue and profit margins.
  
• News Corp is deploying significant capital into share repurchases, underpinned by robust free cash flow, asset divestitures, and a conservative balance sheet, which will shrink the share count and directly support earnings per share growth and shareholder returns, countering long-term share price declines.
  
• Dow Jones' consistently expanding digital subscriptions and circulation revenues, driven by trusted premium content and enterprise partnerships like LSEG, illustrate durable brand strength and rising recurring digital revenue streams, which underpin future topline resilience and sustainable expansion of net earnings.
  
• The Digital Real Estate segment has demonstrated resilient performance, gaining market share even in difficult housing market conditions, and is positioned to accelerate revenue and margin growth as interest rates normalize and real estate volumes recover, contributing to long-term profitability.
  
• Active investments in growth adjacencies, international expansion, and content acquisition-such as Manga publishing and the integration of AI solutions into subscription businesses-position News Corp to capture new addressable markets and further diversify revenue streams, enhancing both top-line growth and future return on invested capital.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for News is $30.3, which represents up to two standard deviations below the consensus price target of $35.91. This valuation is based on what can be assumed as the expectations of News's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $43.0, and the most bearish reporting a price target of just $30.3.
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be $9.9 billion, earnings will come to $751.6 million, and it would be trading on a PE ratio of 25.8x, assuming you use a discount rate of 9.8%.
• Given the current share price of $29.45, the analyst price target of $30.3 is 2.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.