News Corporation

Welcome to News Corp's second 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 second 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 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 the earnings releases for the applicable periods posted on our website. With that, I'll pass over to Robert Thompson for some opening comments.

Thank you, Mike. For the second quarter in succession, News Corp has achieved growth in both revenue and profitability, and we believe there are strong prospects for further growth as difficult, inauspicious macro conditions ease in some of our markets. We saw particularly robust results across the three core pillars of our company, Dow Jones, book publishing and digital real estate services, where there was resounding improvement in Australia in Q2. And there are early signs of recovery in the US residential sector after the most sluggish market conditions in almost three decades. Given the potential of our world-leading brands, we remain intent on creating long-term value for investors. And, as part of that commitment, our diligent, concerted review of the company's structure continues apace. Looking at the top line results, News Corp's second quarter revenues rose 3% to $2.6 billion and profitability surged 16%, marking the third consecutive quarter of profit growth in testing economic times. Our net income for the quarter rose to $183 million from $94 million in the same quarter last year, while our reported EPS was 27 cents against 12 cents for the same period last year. the company's digital progress and prowess are increasingly evident. Halfway through fiscal 2024, digital now comprises approximately 52% of all revenues. That is more than an e-evolution, it is an e-revolution, one that has touched and transformed every element of every business, and we are far from satisfied, far from complacent, far from completion. We are seeing the collective benefit of our conscious strategic shift away from potentially volatile advertising revenues to growth in circulation and subscription revenues. In fiscal 2014, nearly half of News Corp revenues were from advertising, with 31% from circulation and subscriptions. There has been a fundamental metamorphosis. In the first half of the fiscal year, advertising had receded to 16%, with circulation of subscriptions surging to 44%. Overall, News Corp, as of Q2, had over 7 million subscriptions to our news brands, including The Wall Street Journal, Barron's, The Times and Sunday Times, The Australian and other publications. And we have an additional 4.3 million paid subscribers at Foxtel in Australia, which includes our popular streaming services, K.O. and Binge. And those figures don't include the growing number of loyal subscribers at our professional information business at Dow Jones, where the average retention rate is comfortably above 90%. Artificial intelligence with all its permutations and perturbations will play an increasingly important role at most businesses. We expect to be a core content provider for generative AI companies who need the highest quality, timely content to ensure the relevance of their products. The corny Kellogg cliche is that AI companies are selling the picks and shovels during the seeming gold rush. Well, we are selectively reselling gold nuggets, and those crucial negotiations are at an advanced stage. It is reassuring that certain digital companies appreciate the value of integrity, quality, and creativity. And while certain other media companies prefer litigation, we prefer consultation, as the former is merely creating a gold rush for lawyers. Courtship is preferable to courtrooms. We are wooing, not suing. But let's be clear. In my view, those who are repurposing our content without approval are stealing. They are undermining creativity. Counterfeiting is not creating. And the AI world is replete with content counterfeiters. I would like to compliment Sam Altman of OpenAI, who has shown a clear understanding of the social importance of journalism. He also appears to have emerged unscathed from his first visit to Davos, where there is always attitude at altitude. We are hopeful that again, News Corp will be able to set meaningful global precedents with digital companies that will assist journalists and journalism and ensure that GenAI is not fueled by digital dross. We speak of the AI hallucinating, yet we as a society are hallucinating if we don't focus firmly on provenance at a time when even the very words misinformation and disinformation have themselves become sources of misinformation and disinformation. Too many media companies are scanning the landscape and presuming that they have a glimpse of the future. And yet they cannot distinguish between trendiness and actual trends. Too many media companies for too long have been guilty of the Abilene paradox. Before I turn to the results in detail, I must mention once again our colleague Evan Gershkovich, who continues to be unjustly detained in a Moscow prison. He has been incarcerated for almost a year solely for being a highly professional journalist. We at News Corp, and of course Evan's family and many friends, hope that justice will prevail and that he will be released immediately. I would like to personally thank all those who publicly and not so publicly have been working diligently to secure his emancipation. Turning now to Dow Jones, which yet again achieved its highest level of quarterly revenues and profitability since News Corp's acquisition. That result is thanks to solid performance across the business, most notably in the increasingly successful professional information business, which remains on track to be the largest contributor to profitability at Dow Jones this fiscal year. The professional information business is seeing robust growth due to the integration of OPUS, which was completed ahead of schedule, and CMA, which is near complete. I would like to compliment in particular the News Corp finance team for masterminding, executing and delivering the OPUS and base chemicals deals, which have been so critical to Dow Jones burgeoning growth. Executives at Dow Jones are far from smug and are building a bevy of new and compelling products. For example, Opus' Analytics Pro utilises our database of more than 130,000 fuel stations to track visits and help customers assess their pricing strategies and market trends, as well as compile customer loyalty rates and demographics, among other valuable, actionable data points. Meanwhile, Risk and Compliance's financial instruments product, in partnership with Big TXN, provides a feed of R&C sanctioned profiles mapped to commonly used financial instruments, which is crucial compliance cartography in a heavily regulated world. And DJ Integrity Check, a partnership with Sapien, provides generative AI-driven insight into companies and relevant, potentially problematic individuals. Subscriptions at the news business are continuing to grow. And during the month of January, average daily digital subscriptions to Dow Jones portfolio, including the Wall Street Journal, Barron's, Market Watch and Investors Business Daily, reached over 4.9 million, which represents more than double the pre-COVID average level of 2.4 million digital subscriptions in Q2 fiscal 20. The acceleration of digital subscription growth has been driven in part by the team's bundling of products, which is designed to increase reader engagement and reduce long-term churn. While we have purposefully shifted emphasis to recurring revenues at Dow Jones, we are happy to report that although we face some challenges in print advertising, digital advertising grew year over year for the first time since the first quarter of fiscal 2023. This positive result has been driven primarily by growth in the tech and automotive sectors, and most notably at WSJ.com. Digital real estate services had a strong quarter thanks largely to the prospering of REA, where there was 22% revenue growth year over year, fuelled by an 8% increase in listings with heightened activity in the core Melbourne and Sydney markets and higher pricing. REA India continues to expand rapidly and reported over 19 million monthly average unique visitors in December, solidifying its lead as the foremost digital housing platform in the world's most populous country, where strong economic growth and political stability have created a platform for further expansion. At move, realtor.com continued to be affected by the high US interest rates that have undermined activity in the market. But mortgage rates are beginning to moderate, and in recent weeks there have been early signs of an increase in all important leads. The National Association of Realtors announced that the index for pending home sales increased just over 8% in December versus the prior year, the largest increase since June 2020. Realtor.com's latest housing report revealed that January marked the third consecutive month of year-over-year inventory growth, with a 2.8% increase in newly listed homes for sale compared to January 2023. Unique users at Realtor have also stabilised, with December Comscore data signalling a return to growth. During the downturn, the Realtor.com team has been assiduously improving the user experience, broadening the portfolio of products for our customers and bolstering the back-end technology so we are poised to take full advantage of the incipient recovery in the U.S. housing market. HarperCollins had stellar results for the second successive quarter. This was thanks to strength in both the front list and the back list, notably in the blossoming audiobooks category. we saw 15% digital revenue growth in the quarter, fueled by a 29% audiobook sales increase due to a flourishing market and our new partnership with Spotify. Spotify appears to be expanding demand for audiobooks and opening the category up to new consumers. I would like to commend our thoughtful partner, Daniel Ek, for his commitment to creativity. In Q2, we saw success with bestsellers like The Pioneer Woman Cooks Dinner's Ready by Reid Drummond, The Little Liar by Mitch Albom, Ann Patchett's Tom Lake, and Barbara Kingsolver's Demon Copperhead. We also saw strong sales for Christian books, including The Great Disappearance by Dr. David Jeremiah, who is Rapture Ready, and the Bible itself. Looking ahead to Q3, we have great expectations for, among others, AJ Finn's End of Story and I Am More Than by LeBron James. At Subscription Video Services, our new streaming aggregation product, Hubble, is expected to launch next month and improve the search experience for our cherished customers seeking entertainment and sports. We believe Hubble would be the most effective conduit between consumer and content and add to the Foxtel success story. In a volatile world, Foxtel has achieved eight consecutive quarters of revenue growth in constant currency, while being acutely and astutely cost-conscious in managing the transition to streaming. At Kayo, we are looking forward to the upcoming winter sports season for Australian rules football and rugby league, the two dominant sports. And at Binge, there has been early success with advertising at the basic tier, while continuing ad-free service for premium customers. In news media, our news brands have seen improvement in traffic in recent weeks, a turnaround after convulsions in the first half, where there were algorithmic aberrations. Gratifyingly, we experienced digital subscription growth during the quarter. Rebecca Brooks and her team at News UK have overseen continuing progress at The Times and Sunday Times, which set a new record for the quarter in digital subscriptions. at 575,000 and saw significant digital ad growth, up 21% on a reported basis and over 15% in local currency. We expect the success of The Times to continue beyond Britain's borders with the imminent digital launch of The Times in the US. We are confident that it will resonate with discerning readers hungry for objective news coverage in a market saturated with narrative non-journalism. And Newscore Australia, news.com.au, was again the country's leading news website with nearly 13 million monthly uniques in December, according to metrics from Ipsos. And the New York Post is again on course to be profitable and has expanded its positive political influence in these vexed and vexing times. With the strong results in Q2 and Q1, we are off to a sterling start in fiscal year 2024, which follows the three most profitable years for the new news call. We can sense that investors are beginning to appreciate keenly the value of our brands and the potential of our portfolio. On behalf of all our investors, we have transformed free cash flow generation, bolstered our balance sheet, initiated a dividend, and are continuing our billion dollar buyback plan. For that transformative success, I would like to pay tribute to the strategic support of Rupert and Lachlan Murdoch and to our highly engaged directors and to the commitment of our employees around the world. I am now pleased to turn to my talented colleague, Susan Panuccio, who will elaborate on these buoyant results.