News Corporation — Form 10-Q Summary
Reporting period: The filing covers the fiscal quarter and nine months ended March 31, 2021 (fiscal Q3 2021), compared with the corresponding 2020 periods. The request metadata says “2020 Q3,” but the filing itself is for 2021 Q3. Unless otherwise noted, amounts are U.S. dollars.
Business context and results
News Corp is a diversified media and information services company with six reportable segments: Digital Real Estate Services, Subscription Video Services, Dow Jones, Book Publishing, News Media and Other. Prior-period segment disclosures were recast following the News America Marketing sale and separation of Dow Jones as a reportable segment.
| Metric | Three months ended March 31, 2021 | Three months ended March 31, 2020 | Nine months ended March 31, 2021 | Nine months ended March 31, 2020 |
|---|---|---|---|---|
| Revenue | $2.335 billion | $2.266 billion | $6.866 billion | $7.085 billion |
| Segment EBITDA (non-GAAP) | $298 million | $242 million | $1.063 billion | $818 million |
| Net income (loss) | $96 million | $(1.036) billion | $404 million | $(1.144) billion |
| Net income (loss) attributable to News Corp stockholders | $79 million | $(730) million | $344 million | $(872) million |
| Basic and diluted earnings (loss) per share | $0.13 | $(1.24) | $0.58 | $(1.48) |
Segment EBITDA margin, calculated as Segment EBITDA divided by revenue, was approximately 12.8% in Q3 2021 versus 10.7% in Q3 2020, and 15.5% versus 11.5% for the nine-month periods. The filing cautions that Segment EBITDA is a non-GAAP measure and is not a substitute for GAAP results or cash flow.
Financial position and cash flow
- Cash and liquidity: Cash and cash equivalents were $1.974 billion at March 31, 2021, up from $1.517 billion at June 30, 2020. Current assets were $3.943 billion and current liabilities were $3.169 billion. News Corp reported an undrawn $750 million revolving credit facility and said available liquidity was expected to meet needs for at least 12 months.
- Cash flow, nine months: Operating cash flow was $1.060 billion, compared with $462 million in the prior-year period. Capital expenditures were $253 million; investing cash outflow was $346 million; financing cash outflow was $329 million. Cash dividends paid were $104 million.
- Free cash flow available to News Corporation: The company’s non-GAAP measure was $762 million, versus $63 million, reflecting higher operating cash flow and lower capital expenditures. This measure excludes REA Group free cash flow and includes dividends received from REA Group.
- Debt: Total borrowings, including current debt and finance lease liabilities, were $1.212 billion at March 31, 2021, versus $1.259 billion at June 30, 2020. Cash exceeded reported borrowings by approximately $762 million at quarter-end. Most borrowings were at Foxtel and REA Group and were non-recourse to News Corp; the company said it was in compliance with debt covenants.
Changes versus prior comparable periods
- Q3 revenue rose 3%, while nine-month revenue declined 3%. The Q3 improvement reflected growth in digital real estate, publishing, subscription video and Dow Jones, partly offset by News Media weakness. Nine-month revenue was affected by the News America Marketing sale, which reduced the comparison by $590 million, and lower print advertising.
- Advertising revenue fell 35% in Q3 and 38% for the nine months; circulation and subscription revenue increased 11% and 5%, respectively. Consumer revenue increased 19% in both periods, and real estate revenue increased 39% in Q3 and 21% year to date.
- Profit improved substantially from the prior-year impairment-affected loss. The prior-year periods included major non-cash impairment charges, including a $931 million write-down at Foxtel and charges related to News America Marketing. Fiscal 2021 also included restructuring charges of $30 million for Q3 and $93 million for the nine months.
- For the nine months, Segment EBITDA increased at Digital Real Estate Services ($378 million versus $274 million), Subscription Video Services ($293 million versus $219 million), Dow Jones ($263 million versus $176 million), and Book Publishing ($255 million versus $167 million). News Media EBITDA declined to $52 million from $97 million; Other’s loss widened to $178 million from $115 million.
Management commentary, outlook and notable items
- Management attributed digital real estate growth to stronger real estate activity, lead volumes and yields at Move, and growth in Australian residential listings at REA Group. Book Publishing benefited from strong title sales and digital sales growth. Dow Jones benefited from subscription growth, digital advertising and cost savings.
- Subscription Video Services revenue benefited from Kayo and Binge, but broadcast subscribers and commercial subscriptions were lower. Foxtel’s paid OTT subscriber totals were 851,000 for Kayo and 516,000 for Binge; broadcast residential subscribers were 1.711 million versus 1.942 million a year earlier. Broadcast churn was 20.1% for the quarter versus 17.5%.
- News Media faced weaker print advertising, COVID-19-related market pressure, the News America Marketing divestiture and Australian regional newspaper closures or digital transitions. Management said those Australian initiatives were expected to reduce fiscal 2021 revenue by approximately $111 million, with an immaterial impact on Segment EBITDA.
- Management does not ordinarily provide projections of future operating results. It expected Other-segment costs in Q4 to be approximately $20 million higher year over year, mainly reflecting the absence of prior COVID-related bonus reductions and investment in the global shared-services initiative. COVID-19 and related uncertainty may affect demand, estimates, taxes and results.
- Subsequent financing and transactions: Foxtel amended facilities in April, extending certain maturities from November 2022 to May 2024 and reducing margins. News Corp issued $1 billion of 3.875% senior notes due 2029 in April. It agreed to acquire HMH Books & Media for $349 million and REA Group agreed to acquire Mortgage Choice for approximately A$244 million, both subject to closing conditions. News Corp also acquired Investor’s Business Daily for $275 million in cash in May.
- Legal exposures include antitrust litigation involving former News America Marketing liabilities, HarperCollins-related publisher antitrust class actions and U.K. newspaper matters. The filing says outcomes are uncertain and, for most disclosed proceedings, a loss range could not be estimated. U.K. newspaper liabilities accrued were approximately $43 million, with a $52 million indemnification receivable from Fox Corporation recorded.
Important facts for investors to verify
- Whether subscription, digital advertising and real estate growth can offset continued pressure on print advertising and News Media revenues.
- Foxtel subscriber trends, churn, OTT profitability and the impact of sports-rights cost reductions.
- Cash generation and liquidity after the $1 billion notes issuance and announced or pending acquisitions; note that some cash is held in subsidiaries, including $114 million at REA Group that is not readily accessible without a dividend.
- Acquisition closing conditions, financing and integration for HMH Books & Media and Mortgage Choice, and the financial contribution of Investor’s Business Daily.
- Developments in the disclosed litigation and tax examinations, including potential costs beyond amounts accrued or indemnified.