News Corporation

Welcome to News Corp's first quarter fiscal 2024 earnings conference call. Today's conference is being recorded. Media will be allowed on a listen-only basis. At this time, I would like to turn the conference over to Michael Florin, Senior Vice President and Head of Investor Relations. Please go ahead.

Thank you very much, Operator. Hello, everyone, and welcome to News Corp's fiscal first quarter 2024 earnings call. We issued our earnings press release about 30 minutes 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 will open with some prepared remarks, and they'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 gap-to-non-gap reconciliations of such measures can be found in the earnings release for the applicable periods posted on our website. With that, I'll pass it over to Robert Thompson for some opening comments.

Thank you, Mike. In a world replete with uncertainty, News Corp is proud to report rising revenues and increased profitability in the first quarter of fiscal 2024. These distinctly positive results come despite inauspicious macroeconomic conditions, including steep interest rates and unfavourable foreign exchange fluctuations. The potential for even greater profitability should be even more pronounced when we return to economic equilibrium. These results follow the three most profitable years since the creation of the new News Corp and our digital transformation has continued apace. And in our view, these results certainly highlight the disparity between the value of our company and our share price, which we believe does not reflect our present profitability, yet alone the potential of our incomparable growing businesses. We are acutely focused on enhancing long-term value for all of our investors and, in that quest, have the patent advantage of prized assets whose value we believe is increasing. We are also assiduously reviewing our structure in the quest to optimise that value. Our first quarter revenues rose modestly to $2.5 billion, while profitability rose 4%, marking the second consecutive quarter of profit growth in these challenging conditions. We believe these positive results are a harbinger of our potential in the medium and long term. We expect to continue to drive our digital growth, the scale of which has been transformative over the past decade. It is worth noting a couple of metrics for context and to highlight the intrinsic value of our company. In 2014, print-related advertising accounted for 39% of our revenue, and now it is trending at less than 5%, while digital revenues exceeded 50% of revenues last year, up almost 300%. Our loyal investors understand the inherent value of our assets and the scale of our dramatic transition. But we believe the market has yet to fully comprehend the magnitude of the metamorphosis or the future potential of our platform. We have been and expect to continue to generate significant free cash flow this fiscal year. And we have a $1 billion buyback plan well underway and ample opportunity to be opportunistic. That opportunistic efficacy was shown in our purchases of Opus and CMA for Dow Jones, two high-margin digital businesses with recurring revenues, which have added much profitable prowess. Their impact means that we are at a pivotal point at our Dow Jones business. The B2B segment at Dow Jones is now outpacing the B2C segment in contributing to profit and at a far higher margin. The net result is that we expect both Dow Jones and News Corporation are becoming more profitable, more digital, and even less dependent on the ebb and flow of advertising. That is why we are highlighting the Dow Jones results today and expect to be providing increasing visibility over the coming year so that potential investors can appreciate the full glory of our valuable assets while we intensify our institutional introspection on structure. As a reminder, Dow Jones profitability has more than doubled since we re-segmented in fiscal 2020, generating close to $500 million in segment EBITDA last year, with strong growth prospects ahead. And the EBITDA margin has been utterly transformed. In Q1 fiscal 18, it was approximately 9%. In Q1 fiscal 20, it was 12.8%. And in Q1 this fiscal year, 23.1%. We certainly agree with the perceptive commentators and analysts who suggest that Newscore is undervalued and its asset quality underappreciated. Our board, our leaders and our teams deserve much credit for skilfully navigating the turbulent media waters of the past decade. Waters which have proven treacherous for many media companies. As always, we remain focused on maximising that value to the benefit of all shareholders. We are also looking to the future in maximising the value of our premium content for AI. We are in advanced discussions with a range of digital companies that we anticipate will bring significant revenue in return for the use of our unmatched content sets. Generative AI engines are only as sophisticated as their inputs and need constant replenishing to remain relevant and we are proud to partner with responsible purveyors of AI products and their prescient leaders. One observation about generative AI. We often hear about misinformation and disinformation to the point where the very words have become politicised and polluted. The potential for the proselytising of the perverse will become ever more real with the inevitable, inexorable rise of artificial intelligence. But, however artfully artificial intelligence, it is no match for great reporting and for genuine journalistic nous. On the subject of journalism, I would like to pay tribute to our reporters in the Middle East and in Ukraine who are each day taking calculated risks to bring insight and intelligence to readers around the world during a period of unpredictable turbulence. And I would like to highlight the fate of Evan Gershkovich, the Wall Street Journal reporter who has been unjustly incarcerated in Russia for more than seven months merely for doing his job as a journalist. Let me begin the more detailed exegesis with the increasingly valuable Peerless Dow Jones, where revenues rose 4% in Q1 despite the volatility of the ad market, while segment EBITDA was lifted by an impressive 10% as revenue and profit contribution continued to expand in the professional information business. Dow Jones offers a unique set of services and products for global business users and readers. As a result, many of our customers encounter Dow Jones products several times each day. Not just the Wall Street Journal, Barron's, MarketWatch and Dow Jones NewsWise, but also Risk and Compliance, Dow Jones Energy and Factiva. Risk and compliance revenues surged 23% thanks to increased demand from the financial and corporate sectors seeking to minimise risk and maximise compliance. I trust all of the institutions on the call today aspire to those two worthy goals. RNC has expanded revenues by over 600%. Let me repeat that number, over 600% since we relaunched news in 2013. It is worth emphasising that the business is fully digital and has retention rates of over 90%. Dow Jones Energy, which includes both Opus and CMA, continues to see excellent double-digit revenue growth, driven in part by higher pricing, and is exceeding our initial expectations, thanks to the global energy transition and opportunities emerging in renewable energy, along with continued reinvestment. Our customer base is growing as we launch compelling products and create critical pricing benchmarks. We are genuinely impressed by the vitality and drive and initiative among our new colleagues at both Opus and CMA. Factiva is benefiting from its innovative partnership with Cision. And Factiva should be an important building block in the AI future, given that it has a database of 33,000 sources in 32 languages from more than 200 countries and territories. That impressive content collection complements our contemporaneous news offerings as we seek to serve corporate, professional, and consumer audiences. Across Dow Jones, subscription volume remains strong, with digital subscriptions reaching 4.6 million, up 12%, while total subscriptions reached 5.3 million, up 8%. Our teams are focused on reducing churn and maximising the lifetime value of each and every subscriber. As for advertising, we saw particular improvement in trends, with declines of past quarters abating and digital advertising down only 2%. In digital real estate, it was a tale of two markets during the quarter, with the Australian property market improving and the US market still bearing the burden of particularly high mortgage rates, which obviously suppressed demand. But it is fair to say that the revenue rebound in the Australian market certainly surpassed the sluggishness in the US market. REA reported strong growth in listing volumes in the two key markets of Sydney and Melbourne, and our valued clients were keen to subscribe to premium products, thus improving yield. We also saw resounding top-line performance, and volumes remained strong in October. REA India is the number one property portal in a country with a rapidly expanding middle class, and both its audience and revenue continued to surge during the quarter. As REA has disclosed, the total audience in India in the quarter was up 16% year over year, while revenue during the quarter was 25% higher than a year ago. Given relative political stability in India and ongoing economic growth, REA India is a jewel in the crown. In the US, Realtor.com, like the industry at large, was affected by the unusually high interest rates, which do appear to have plateaued and are expected to ease over the coming year. But these short-term conditions do not change our long-term optimism for Realtor to capitalise on the increasing digitisation of the world's largest property market. It is easy to buy transient traffic in the short term, but that is merely a sugar high that leads to digital diabetes. We have a long-term commitment to all Americans who are buying and selling a home and to real estate professionals. We also have the ability to leverage our unique media platforms from WSA.com to the New York Post, among many others, who had a combined monthly audience of over 200 million uniques in September. These are verified, authenticated numbers, not a concocted cocktail of cockamamie. Under Damien Eel's energetic, decisive leadership, Realtor is building on the gains of his predecessors and focusing on developing core markets, core clients and core profitability. The Realtor team is working ever more closely with REA executives in ways that are benefiting both businesses with the sharing of software, marketing mechanics and AI insights. The script for our publishing business was completely rewritten in the first quarter. After a few difficult quarters, segment EBITDA at HarperCollins leapt 67%. Revenues posted a healthy 8% increase, and that growth combined with cost initiatives undertaken over the past year and an easing of supply chain inflationary impacts recalibrated the performance at HarperCollins. The logistical upheaval at Amazon has passed, return rates are far lower, and both the front list and back list notched gains during the quarter. Among the many and varied strong sellers were Tom Lake by Ann Patchett, Demon Copperhead by Barbara Kingsilver, The Collector by Daniel Silva, and Remarkably Bright Creatures by Shelby Van Pelt. We saw particular strength in our Christian books business, including Reba McIntyre's Not That Fancy. Reba was clearly not describing the HarperCollins performance. And speaking of Christian books, we look forward to publishing a new book by His Holiness Pope Francis next spring. I would like to highlight our new partnership with Spotify to broaden the reach of audiobooks. This is a project we have discussed for some time with the estimable Daniel Ek, with whom I share a passion for books and for the Arsenal Football Club. The new partnership has begun with the UK and Australia and in the US announced yesterday. And we are genuinely confident that it will be positive for both companies, for authors and for those who love to read and to listen to books. This market has needed a strong new entrant and Daniel and his team are among the most skilful players on the pitch. At subscription video services, revenues were up in constant currency for the seventh consecutive quarter. As expected, the decline in EBITDA was mainly due to sports rights costs and forex fluctuations. But we have no doubt that our streaming strategy has been successful at a time when other companies in other markets are struggling. Overall, paid streaming subscriptions rose 8% on the same quarter last year, while broadcast churn was down from 14.2% to 11.4%, showing that the two products are undoubtedly complementary. But the team at Foxtel is far from complacent. and so we are on the cusp of launching our new streaming aggregation product, Hubble, which will greatly simplify the search for fascinating entertainment and sports, from our own companies and from those of our cherished partners, to the benefit of all, in particular to the benefit of viewers. The news media segment faced macroeconomic headwinds and volatility caused by algorithmic changes at the large platforms, but these trends are more ephemeral than eternal. Subscriptions continued to increase at the Times and Sunday Times, which reported an 8% rise, and at News Corp Australia, where we saw a 4% increase in digital subs. As I mentioned earlier, we are increasingly less reliant on advertising, which is now a smaller fraction of our overall revenue, and focused on digital recurring revenue streams. We saw strong performance at Wireless in the UK, which had a record 45 million listening hours over the April to September period, up 17% from the prior year, according to Raja, led by sports and news. Our teams in the UK and Australia are also acutely cost conscious and we are retooling the infrastructure to reflect the contemporary and future initiatives, including printing operations, advertising networks and back office expenses. Rebecca and our teams in the UK have been leaders in creating programmatic ad partnerships which enable all to increase yield and harvest valuable data. This was, in another way, an historic quarter. Our Executive Chair, Rupert Murdoch, announced that he will be transitioning to Chairman Emeritus next week at our AGM. I can personally assure you that there has been no change in his heightened levels of curiosity and energy since the announcement, and his vast experience will be an important ongoing resource for the company. All of us at News Corp stand on the shoulders of a giant. And I genuinely look forward to Lachlan becoming sole chair next week. His thoughtful engagement with our teams already enhances the business each working day. And his passion for principled journalism is obvious to all who work with him. There is no doubt that Lachlan's multidisciplinary expertise and his philosophical integrity will be invaluable as we continue the next phase of our crucial journey. And now, our esteemed CFO, Sivan Panuccio, will provide more financial granularity.