News Corporation

Good day and welcome to the News Corp 1Q fiscal 2021 conference call. Today's conference is being recorded. Media will be on a list and on a basis. At this time, I would like to turn the conference over to Mike Lauren, Senior Vice President and Head of Investor Relations. Please go ahead, sir.

Thank you very much, Corey. Hello, everyone, and welcome to News Corp's fiscal first quarter 2021 earnings call. We issued our earnings press release about an hour ago, and it's now posted on our website at newscorp.com. On the call today are Robert Thompson, Chief Executive, and Susan Panuccio, Chief Financial Officer. We'll open with some prepared remarks, and then we'll be happy to take questions from the investment community. This call may include certain forward-looking information with respect to News Corp's business and strategy. Actual results could differ materially from what is said. News Corp's Form 10-K and Form 10-Q filings identify risks and uncertainties that could cause actual results to differ and contain cautionary statements regarding forward-looking information. Additionally, this call will include certain non-GAAP financial measurements such as total segment EBITDA, adjusted segment EBITDA, and adjusted EPS. The definitions and GAAP to non-GAAP reconciliations of such measures can be found in our earnings release. With that, I'll pass it over to Robert Thompson for some opening comments.

Thank you, Mike. Wherever you happen to be and whatever time it happens to be, virtually and actually, I trust it all will fare well during these most challenging of times, personally and professionally. We are certainly in the midst of a political uncertainty in the US, and continuity is a blessing in these polarised and polarising moments. Please continue to stay both safe and sage. I would in particular like to express my gratitude to all our employees who have traversed this difficult terrain with courage and commitment. and who have played an important, empathetic role in their communities during these stressful months. Despite the harsh conditions and the inevitable COVID-caused disruptions, I am pleased to report that Newscore had a particularly robust first quarter, with resounding year-on-year growth in our profitability and revenue expansion in several key segments. Three vital pillars of our company. Dow Jones, book publishing, and digital real estate services had notable EBITDA growth and higher revenue in Q1. Consolidated revenues were over $2.1 billion, and while that was down 10% year-over-year, adjusted revenues, which exclude News America marketing, unruly, and other items noted in the press release, were only 3% lower. Consequentially, in Q1, News Corp's total segment EBITDA was $268 million, an increase of 21% year over year, evidence of the strength of our core businesses and the growth potential of those sectors in which we have made significant acquisitions, in particular, digital real estate and book publishing. We are also benefiting from our strategy to simplify the company, allowing us to focus on the segments that have the greatest growth potential, as well as ensuring that we are resolutely reducing shared costs around the company. We are determined to provide greater transparency for investors, and the presentation of Dow Jones as a separate segment was integral to that continuing process. Turning now to the details. Digital real estate services flourished this quarter. Despite limits on home inspections and other COVID-related disruption, revenues increased 7% year-over-year, while segment EBITDA surged 45% year-over-year, led by particularly strong results at Move, operator of Realtor.com, which had record revenues in the quarter of $138 million. Both REA and Realtor.com reported record traffic during the quarter, with the latter having reached a high of 92 million monthly unique visitors in August, while traffic was up 26% for the quarter. Based on Comscore data, Realtor has outpaced Zillow in audience growth for 16 of the past 18 months. This success comes as Realtor.com continues to focus on transforming its business towards their data-rich referral model. We are convinced there is a substantial opportunity for Realtor to expand its market from a still deep pool of real estate marketing dollars to provide value-added services at premium prices in mortgages, titles and other adjacent categories. I would note Realtor.com's new partnership with Rocket Mortgage as one example of the company's growth potential and our efforts to expand the addressable markets. Realtor.com also recently launched the Seller's Marketplace to provide listings for iBuyers without the antediluvian approach of our main competitor, which has been doubling down on its house flipping business. We are a genuinely nimble, agile digital company and will leave bricks and mortar to the specialists. Realtor.com is also constantly focused on improving transparency and choice for those buying and selling homes. including higher quality estimates and salient information about everything from flood risk to neighbourhood noise levels. We have been introducing features while still being cost-conscious, and that blend of creativity and discipline is behind the burgeoning of the business. At REA, while listing volumes have patently been affected by government-imposed COVID restrictions, the business still posted a higher profit contribution. What we are seeing at both companies is that the pandemic has been a catalyst for many families to reconsider their current housing and environment, prompting an increasing number to seek less dense areas and larger properties. As the restrictions on movement ease, we believe that trend is likely to gather momentum, particularly at a time of record low interest rates. As we noted earlier, Dow Jones is now reported as a separate segment, which is a nag part of our efforts to increase transparency and highlight an inherent value. As you can see from the company's resounding results, there is much to savour about the business and its prospects. As we noted in our Investor Day presentation, Dow Jones aims to double its subscribers, given an incremental pool of 12 million prospective Dow Jones premium customers in the US alone. And as the world's leading provider of business news and analysis, Dow Jones and the Wall Street Journal have maintained premium pricing, and we are increasing our efforts to upsell our customers' high-value specialist products. Revenue benefited from accelerating digital circulation and digital advertising growth, and continued expansion at risk and compliance. These compensated for a not unexpected decline in print advertising. No, the total ad decline was not as marked as that of other publishers. As a result, Dow Jones segment EBITDA grew 47% year over year. A few metrics to note behind that admirable result at a turbulent time. Risk and compliance revenues rose 16% year over year, representing the 21st consecutive quarter of double-digit growth. The Wall Street Journal reported 27% growth in digital-only subscriptions, and total Dow Jones subscriptions increased 18% in the quarter, reaching approximately 3.9 million. MarketWatch also had a buoyant quarter, with the highest first quarter of revenue results in its history as traffic surged to 52 million average monthly uniques. In recent days, we have moved to further monetize that fast-expanding audience by introducing subscriptions and enhancing the news flow for loyal readers. The early results are rather positive for both MarketWatch and Barron's. To give the sense of the size of the Dow Jones universe, which, like the actual universe, is still expanding, Traffic across the digital network rose 54% year over year in Q1, averaging 127 million unique users per month, according to Adobe Analytics. And we firmly believe we are still at a relatively early stage of our potential audience revenue growth. Meanwhile, in book publishing, HarperCollins also reported a strong quarter, with revenues increasing 13% and segment EBITDA up 45%. Again, those results reflected a mix of the creativity of the commissioning along with disciplined, diligent cost control. Re-opened bookstores restocked their shelves with compelling HarperCollins tones, and overall digital sales in Q1 rocked 20% compared to the prior year, continuing a trend that was evident in Q4 of fiscal 20. Direct-to-consumer revenues rose almost 38% year over year. and the I Can Read book club for children nearly quadrupled its membership since February to more than 95,000 monthly active users as of quarter end. Best-selling authors included Daniel Silver, Jenna Bush Hager, Lucy Foley, Ben Shapiro, and LeBron James. And looking ahead, we have high hopes for Frontier Follies by Reed Drummond, The Greatest Secret by Rhonda Byrne, Concrete Rose by Angie Thomas, and Code Name Bananas by David Walliams, which has been released today. At Foxtel, there was marked improvement in the growth of the OTT business, which saw total closing page subscriptions reach a new record high, with nearly 3.3 million subscribers. This includes over 1.2 million paying customers of Kayo, Foxtel Now, and the recently launched Binge. In total, there was a 67% year-over-year growth in the OTT base. To be specific, as of September 30, KO had 644,000 paid subscribers and 681,000 total subscribers. Foxtel now had 298,000 paid subscribers and 310,000 total subscribers. And the burgeoning binge had 290,000 paid subscribers and 331,000 total subscribers. One other note about binge. The active subscriber is watching for 7.5 hours a week. so we are clearly pleased with how they're binging on binge. In the news media segment, the rate of year-over-year revenue decline moderated compared to Q4. Obviously, the direct year-on-year comparisons are complicated by the sale of both NAM and Unruly. Cost consciousness continued to be raised, with one recent announcement of note. In September, we detailed plans to shift the printing of the Wall Street Journal, the New York Post and Barron's to the New York Times plant in Queens, and we are actively exploring options for the Bronx print plant site, for which there has been considerable interest. This decision involved much agonising, as the Bronx plant and its talented, committed staff have played an important role in the history of the company and the US newspaper industry. Their sterling efforts will resonate for many decades to come as the mastheads continue their migration to digital in a rapidly changing media environment. A measure of that evolution is that the New York Post digital network traffic grew 35% in September year over year to 144 million unique users. Digital advertising in the quarter climbed over 20% and nearly 90% of advertising revenues at the Post are now digital. The transformation of News Corp Australia continued apace with the transition of most of our community and regional mastheads to digital only. All told, our Australian titles saw strong digital subscription growth up 26% year over year to 685,000. In the UK, the Times and Sunday Times digital subscribers expanded 8% to 337,000 and also saw strong APU growth. Also in the UK, Times Radio, launched last quarter, has already exceeded over 100,000 listeners each week, clearly benefiting from a leveraging of the strong Times brand and talent. Of course, it is also a powerful marketing platform for all of our UK titles and businesses. Finally, it should be clear to all that the digital landscape is changing dramatically, and we are at the forefront of that change. It could even be argued that much of that change would not have happened without News Corp's advocacy over the past decade. The drive towards achieving a premium for premium content has gathered momentum, and we are pleased that negotiations with the large platforms are ongoing. This is certainly not the end of the issue, but without being too Churchillian, it is the end of the beginning. Now more than ever... We believe it is evident that Newscore has value above and beyond the sum of our parts, though that mathematical fact is yet to be fully realised for our investors. That value should be more visible now that we have broken out the Dow Jones results, which also increases the scrutiny of our other news businesses, which are themselves in the midst of a successful transition. We plan to continue simplifying the business. and are open to making structural changes to maximise value, and will continue to address the cost base. Unlike most media companies, we have the option of optionality, having carefully marshaled our cash reserves, which have improved since the pandemic began. I believe our continuing concerted initiatives are making us a more focused and more digital company, which will generate enhanced returns for our investors in the months, the quarters, and the years to come. And now, for further financial enlightenment, we turn to Susan Panuccio.