This article is proudly sponsored by the Business Ethics Team at the University of Texas at Austin!
About News Corporation
At first, the company name “News Corporation” likely doesn’t mean much, if anything at all, to you.
Maybe the company has something to do with the news or keeping its viewers up on current events and the state of geopolitical affairs.
Yep, pretty much.
This is one of the more controversial companies we have analyzed thus far, as it is essentially Australian billionaire media mogul Rupert Murdoch’s masterpiece.
For those who are still a bit lost, News Corp. is home to a few specific brands and supporting entities that you have likely heard of before, or perhaps even consumed.
Take, for example, Dow Jones & Company, which itself owns financial websites MarketWatch, Barron’s and Investor’s Business Daily. In addition to Dow Jones & Company, News Corp. is also home to one of the most storied (pun shamelessly intended), well established publishing companies in the world, HarperCollins, famed real estate listing search platform Realtor.com and it wouldn’t be Murdoch’s without a handful of some of Australia’s most influential media outlets, including the likes of Herald Sun and The Australian, not to mention Foxtel, the parent company of Fox Sports Australia.
These are some of News Corporation’s prized possessions.
Evidently, media in general is a huge part of the world we live in and it is just as evident that News Corporation is a key, major player in the media we consume on a daily basis.
Given all of this initial information, it makes some sense that News Corporation derives most of its total annual revenues from common media-related streams such as user and/or reader subscriptions, hosting advertisements on its various platforms as well as occasionally licensing its content.
For the most part, we view these revenue streams as being recession resistant, however, when it comes to consumer media subscriptions, many are likely to cut their subscriptions as their budgets constrict as economic conditions worsen, which just happens to be the case as of the time of this writing.
Nevertheless, advertising is largely insulated in the long run as is licensing for a company with the footprint and standing of News Corporation.
Now that we’ve become a bit more familiar with the company, its history and its operations, it’s about that time that we take a closer look at its core financials so as to potentially determine whether or not this stock (NASDAQ: NWSA) is worth purchasing and holding onto indefinitely.
News Corporation’s stock financials
With a market capitalization of just south of $10 billion, a share price of $17.55, a price-to-earnings (P/E) ratio of 33.28 and an annually distributed dividend of $0.20, there isn’t much to love about this company’s stock.
That is, so far.
Primarily, even though this company’s share price alone appears to be relatively inexpensive, its intrinsic, actual value and stock price have some catching up to do, as indicated by its comparably high price-to-earnings ratio of nearly 34.
In other words, this company’s stock seems overvalued, and not just by an excusably low margin.
While it’s nice that this company offers its shareholders a stable dividend, to us it is pretty unimpressive and we would have no issues whatsoever finding another company that offers a much larger annual dividend.
Moving right over to the company’s balance sheet, the company’s executives are in charge of $17.2 billion in total assets as well as around $9 billion in total liabilities, which to us isn’t a bad total asset-total liability breakdown by any stretch, as its total assets outweigh its total liabilities by a comforting margin.
Onto the company’s income statement, News Corporation’s total annual revenue (looking at the past five years, since 2018) has been as steady and boring as all get out like its annual dividend.
Namely, this company’s total annual revenue has remained in the $9 billion and $10 billion territory over the aforementioned time period, which speaks to the consistency through which this company generates revenue.
It should be noted that during 2020 and 2021 its total revenues shifted into the lower $9 billion zip code, which supports our initial hypothesis that consumers, albeit a relatively small amount, will cut back on their discretionary expenses (including media subscription packages) as the economic landscape gets increasingly ugly.
From the perspective of the company’s cash flow statement, COVID-19 was far from this conglomerate’s friend, as its net income during 2020 plunged from its figure in the year before, $228 million, subsequently plummeting down to -$1.545 billion.
Although it’s encouraging that its net income the following year picked itself up and climbed to $389 million, it can be easily noted that this company, although a larger online media entity, has its fair share of COVID-19 and greater overall economic sensitivities.
News Corporation’s stock fundamentals
Candidly, this part doesn’t make a whole lot of sense to us.
According to TD Ameritrade’s platform, News Corporation’s trailing twelve month (TTM) net profit margin is 3.85% compared to the industry’s average of 9.39%.
Sure, News Corporation has a lot of valuable assets that may or may not take some time to generate returns on this spectrum, but the discrepancy between the two is far greater than we had initially anticipated.
From our point of view, this company needs some work on finding ways in which it can widen its net profit margin and get it to a more competitive level simply because we view this current level as a lot worse than simply underwhelming.
As it pertains to the company’s TTM returns on assets and investment, News’ are a bit more in-line with the industry’s average, however, they still trail each of the industry’s averages by about one percent.
We’d like to do more independent research to determine why this is the case.
Should you buy News Corporation stock?
An overvalued stock, an unexciting annual dividend, a lackluster TTM net profit margin and low, uncompetitive TTM returns on both assets and investment(s) don’t exactly add up to a screaming “buy” recommendation.
Additionally, having the numbers prove that this company has its fair share of sensitivity to economic downturns and widespread frothy market environments, News Corporation does have some very compelling assets under its corporate umbrella but the stock for the aforementioned reasons is simply not compelling to us at the moment.
We give the company’s stock a “sell” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.