Business context and reporting period
News Corporation is a diversified media and information services company spanning digital real estate, subscription video, news and information, and book publishing. This Form 10-Q covers its fiscal second quarter and six months ended December 31, 2020; comparisons are with the corresponding periods ended December 29, 2019. The company reports six segments. Prior segment results were recast to present Dow Jones separately from News Media.
Key financial metrics
Amounts are in U.S. dollars, millions except per-share amounts. Segment EBITDA is a non-GAAP measure.
| Metric | Three months ended Dec. 31, 2020 | Prior year | Six months ended Dec. 31, 2020 | Prior year |
|---|---|---|---|---|
| Revenue | $2,414 | $2,479 | $4,531 | $4,819 |
| Segment EBITDA | $497 | $355 | $765 | $576 |
| Net income (loss) | $261 | $103 | $308 | $(108) |
| Net income (loss) attributable to News Corp stockholders | $231 | $85 | $265 | $(142) |
| Diluted earnings (loss) per share | $0.39 | $0.14 | $0.45 | $(0.24) |
Quarterly revenue fell 3%; advertising declined 34%, while consumer revenue rose 24%, real estate revenue 16%, and circulation and subscription revenue 4%. Six-month revenue fell 6%. The six-month net income improvement largely reflects the absence of $292 million of prior-year impairment charges, along with higher Segment EBITDA and other income.
Cash flow and liquidity: Six-month operating cash flow was $483 million, versus $192 million; capital expenditures were $173 million, versus $237 million; investing cash outflow was $276 million and financing cash outflow was $219 million. Cash and equivalents were $1.562 billion at December 31, 2020, versus $1.517 billion at June 30, 2020. Current assets were $3.596 billion and current liabilities $2.861 billion. Management said available liquidity should meet needs for at least 12 months.
Debt: Total borrowings, including current borrowings and finance lease liabilities, were $1.256 billion, versus $1.259 billion at June 30, 2020. The company also had an undrawn $750 million corporate revolving credit facility. Subsidiary debt is non-recourse to News Corp. The company reported compliance with debt covenants.
Material changes and segment performance
- Digital Real Estate Services: Revenue rose 15% to $339 million in the quarter and Segment EBITDA increased 20% to $142 million. Move benefited from stronger leads and transactions; REA Group’s Australian residential gains were partly offset by weakness in Asian and commercial markets.
- Subscription Video Services: Quarterly revenue rose 2% to $511 million and Segment EBITDA rose 77% to $124 million, supported by OTT growth and lower sports costs. Broadcast subscribers declined and commercial revenue remained affected by COVID-19 restrictions.
- Dow Jones: Quarterly revenue rose 4% to $446 million and Segment EBITDA rose 43% to $109 million. Digital subscriptions and advertising grew; print advertising weakened. Average daily Wall Street Journal digital-only subscriptions were 2.462 million, up 28%.
- Book Publishing: Quarterly revenue rose 23% to $544 million and Segment EBITDA rose 65% to $104 million, reflecting strong backlist and general book sales.
- News Media: Quarterly revenue fell 29% to $573 million, largely due to the News America Marketing sale and weaker print advertising; Segment EBITDA was $66 million, flat year over year. Six-month Segment EBITDA fell 40% to $44 million.
Company-wide advertising revenue fell 34% in the quarter and 39% for the six months. The prior-year six-month results included substantial impairment charges, affecting comparability. Foreign exchange increased revenue by $75 million in the quarter and $125 million for the six months versus the prior-year periods.
Outlook, commentary, risks and unusual items
- The company does not ordinarily provide projections of future operating results. Management expects COVID-19, economic conditions and government restrictions to continue affecting business performance, with outcomes uncertain.
- Move plans an additional $40 million of brand marketing and product development investment in the second half versus the prior year. REA Group expects fiscal 2021 core operating costs broadly in line with the prior year, excluding acquisitions.
- Foxtel expects elevated broadcast churn and continued pressure on commercial subscriptions. The company now expects full-year net cost reductions to be less than $73 million, compared with its prior estimate of A$160 million (about $117 million), including higher second-half sports costs.
- Management expects print advertising and weekday print volumes to remain weak. News Media cost declines are expected to moderate; Dow Jones expenses are expected to rise modestly as it reinvests in digital assets. Book Publishing performance is expected to moderate in the second half. Other-segment costs are expected to increase by at least $50 million in the second half.
- Fiscal 2021 restructuring charges were $63 million for the six months, mainly employee termination and exit costs associated with the planned closure of the Bronx print plant. Sports programming commitments totaled $2.258 billion, including $223 million due within one year.
- In December, the company acquired a controlling interest in Elara, with aggregate purchase consideration of $138 million, and acquired Avail for approximately $36 million upfront, plus up to $8 million contingent consideration. A $7 million Elara remeasurement gain was recorded in other income. Six-month other income also included $46 million of equity-security remeasurement gains.
- Legal matters include retained News America Marketing antitrust cases and U.K. newspaper claims. The company accrued approximately $47 million for U.K. Newspaper Matters and recorded a related $54 million receivable from Fox Corporation; additional claims and ultimate costs remain uncertain.
- Cash held by foreign subsidiaries totaled $839 million, including $137 million held by separately listed REA Group and not readily accessible to News Corp. The filing cites uncertainty around pandemic impacts, financing access, taxes and litigation. Management reported no material change to previously disclosed risk factors.
Important facts for investors to verify
- How much of revenue and earnings growth is recurring, given the News America Marketing sale, prior-year impairment charges, currency effects and investment remeasurement gains.
- Whether digital subscription and OTT growth can offset ongoing print advertising weakness, declining broadcast subscribers and restricted commercial subscriptions.
- Whether Foxtel achieves its revised cost-reduction outlook amid higher sports costs and elevated churn.
- Cash accessibility, subsidiary debt and refinancing requirements, including the timing and terms of upcoming maturities.
- Potential costs and outcomes of the disclosed legal and tax matters, and progress on restructuring and sports programming commitments.