News Corporation

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

Thank you, Mike. Newscore has again made substantial progress on our strategic imperative to transform the company and increase value for all shareholders. Our profitability rose slightly in the third quarter as compared to the prior year, continuing our growth this fiscal year. And that increase follows the three most profitable years since the company was reincarnated in 2013. That improvement, which gathered pace in April, came despite certain macroeconomic circumstances that were far from auspicious, whether a strong dollar that devalued our revenues outside the US, particularly in Australia, or the punitively high mortgage rates that obviously undermined activity in the US housing market. The US housing market contrasts starkly with that of Australia, where strong performance underpinned robust revenue growth at digital real estate services, while at Dow Jones, the professional information business continued to prosper and the segment's profit margin expanded from 20.6% to 21.7%. we remain well on track for the fourth full year of strong results at News Corp. It is, by the way, worth highlighting that our free cash flow in the first three quarters was $491 million, a 53% increase on the $320 million for the same period last year. It is also worth noting that for more than a year, digital revenue has accounted for over half our total revenues, and we believe that trend is destined to continue. We are in the midst of an exponential digital revolution and our own company has continued to change significantly and profitably. Importantly, we are working to promote our quality journalism in the age of generative AI and are gratified that the most enlightened leaders in the industry appreciate the commercial and social value of that content. Separately to that end, we have this week extended our existing partnership with Google. As mentioned previously, we have been reviewing our company's structure, and that work is intense and ongoing, and we have made underlying changes to provide maximum flexibility. Through three quarters of fiscal 24, circulation and subscriptions accounted for 45% of revenues, with advertising at a modest 16%. Ten years ago, we were dependent on advertising for almost half our revenues. Most tellingly, advertising at news media, then our largest source of revenue, now accounts for only 8% of total revenue. I should repeat that number, 8%. And half of that figure is now digital advertising. So the character of the company has fundamentally changed. Dow Jones continues to increase both revenue and profitability this quarter. The professional information business at Dow Jones is an increasingly powerful earnings engine, with yet another quarter of double-digit revenue growth. It remains on track to be the largest contributor to the segment's profitability by the end of this fiscal year, and, we believe, far into the future, given its high margins and 90-plus percent retention rate. Dow Jones Energy, where revenues rose 15%, has just launched the APAC Carbon Market Report, which provides data and insights into emissions trading in Australia, China, New Zealand and South Korea. This important new offering complements Opus's carbon price coverage for North America and other international markets. At Risk and Compliance, where revenues also rose 15%, the team debuted its first Gen AI-powered product, IntegrityCheck, a fully automated research platform that rapidly produces due diligence reports on businesses and individuals from our unique database. Created in partnership with Sapien, IntegrityCheck will help companies ensure they are compliant in a fiendishly complicated and legally fraught regulatory environment. Digital subscriptions at Dow Jones increased 17% year over year and experienced their highest sequential quarterly net growth, with 322,000 added in the third quarter. Average daily digital subscriptions to Dow Jones brands, including The Wall Street Journal, Barron's, MarketWatch, Investors Business Daily, crossed 5 million for the first time during Q3. That total is approximately double the number four years ago. Given the access to a bundle of premium products with the Wall Street Journal at the heart, the Dow Jones team is confident we should see a reduction in churn and an increase in circulation revenues in quarters to come. As for advertising, the market for print remains somewhat soft, though digital advertising rose 4% compared to the prior year, and advertising trends overall improved on the preceding quarter. In digital real estate, REA continued to show robust growth, with revenues surging 15% year over year. A 6% increase in listings across Australia helped spur that success, and I should note that listing growth has again improved in April compared to March, which we believe augurs well for the fourth quarter. REA also remains by far the number one digital real estate platform in Australia, with 4.1 times more monthly visits on average than its nearest competitor. That strength and enhanced product mix for its customers enabled REA to introduce 10% average price increases. That new pricing schedule will apply from July, and we look forward to the benefits in the next fiscal year. Meanwhile, we are pleased with the continuing progress at RAA India, with a 31% advance in revenues in the quarter. Our site, housing.com, is the leading digital real estate platform in the most populous country in the world. Given that country's economic growth, widely forecast to be around 7% this year, and the prospect of ongoing political continuity, we are confident that we have a world-class asset with much potential for expansion. At Move, we are obviously subject to the abnormal aberrant conditions in a US housing market buffeted by high interest rates. However, revenue declines moderated this quarter and lead volume has turned positive for the first time in two years. The results this quarter are broadly consistent with our expectations and we are improving the product and user experience to position ourselves to take advantage when the market trends change from headwind to tailwind. In the wake of legal developments involving the National Association of Realtors, I would echo Move CEO Damien Eales' recent perspicacious comments about the importance of buy-side agents for those seeking professional guidance when purchasing a home, which is surely the most significant investment decision for many families. We continue to closely monitor industry developments, but believe Realtor.com is well positioned to capitalise on its relationship with home buyers and with buy and sell side agents in this evolving landscape. We expect that interest rates will ultimately ease and our experience in Australia suggests that the market will surge dramatically after an extended period of suppressed activity. It is worth noting our landmark rental agreement between Realtor.com and Zillow. This deal upgrades the rental experience of consumers and allows landlords and property managers to benefit from the combined audience of both the Realtor.com and Zillow platforms. There is also a clear financial benefit for Realtor.com, which will allow us to focus on our core buy and sell side offerings. Finally, I would point out that in March, according to Comscore, a verified third-party source, Realtors' unique users grew 5% month over month, comparing very favourably to Homes.com, which experienced a decline in the same period. Moreover, Realtor.com is 1.4 times bigger in terms of monthly unique users and has approximately three times the page views and minutes per visit. Independent verification ensures statistical sumsumus, not metrics mumpsumus. Our media platforms from the Wall Street Journal to the New York Post and Market Watch and Bible Gateway give us a distinct advantage in expanding reach and building brands. Speaking of Bible Gateway, at HarperCollins, while revenues for the quarter were slightly behind the record Q3 results in the prior year, segment EBITDA rose 2%. And for the year-to-date period, EBITDA was 40% higher. In April, we saw stronger performance and hope that will continue for the fourth quarter. We continue to believe the audiobook market holds much promise, especially given our unique partnership with Spotify, which has already broadened the book audience. We hope to benefit from Spotify's recent expansion of its audio offerings to Canada, Ireland and New Zealand. And by the way, fueled by the growth of audiobooks, HarperCollins' digital revenues hit 25% of total consumer revenues in Q3. We believe there is little doubt that the audio segment will continue its expeditious expansion. Bestsellers in Q3 included Shelby Van Pelt's novel, Remarkably Bright Creatures, while Savannah Guthrie's Mostly What God Does continues to thrive, as does Peter Schweitzer's Blood Money and Fangirl Down by Tessa Bailey. Pope Francis's memoir, Life, My Story Through History, which we publish in eight languages, is selling well and will surely have an enduring papal presence in libraries. We anticipate a strong performance in Q4 with Lucy Foley's The Midnight Feast, The War on Warriors by Pete Hegseth, and Day Trading Attention by Gary Vaynerchuk. At Subscription Video Services, the Hubble Streaming Aggregation product launched in March, and we are working with our partners at Comcast to shepherd its adoption throughout Australia. The intent is to reduce churn by increasing engagement and improving the customer experience. Excluding forex fluctuations, adjusted segment EBITDA overall improved by 1% in the segment. KO is benefiting from the impact of a fascinating season of both Aussie Rules Football and Rugby League and had its highest sequential quarterly net additions since inception, powered by both new customer growth and reactivations. We anticipate that recent price increases at KO and expected strong subscriber growth will continue to benefit the bottom line as both leading sports codes are drawing record audiences. Foxtel continued to grow its streaming revenues in Q3, which now account for 29% of circulation and subscription revenues, up from 26% last year, which is helping to drive overall margins, which rose from 14.3% to 14.5%. In news media, our brands continue to increase their digital penetration across the globe and we were vigilant on costs, which were 5% lower than a year earlier. We anticipate further significant savings as a result of our transition of talk TV to focus on streaming and original video content for our established British brands. And we also expect tangible cost benefits following the regulatory approval for the joint printing agreement between News UK and the Daily Mail Group. The Times of London will expand digitally and gradually into the US during Q4, inspired by the success of the US Sun, enriching new audiences and enhancing digital revenues. Much journalism is unfortunately journalist, but our imperative is for reporters to have the objective of being objective and for our columnists to have the objective of being subjective. As of the end of March, the Times and Sunday Times closing digital subscribers, including the Times Literary Supplement, were at 582,000, up 5% year over year. Meanwhile, digital subscribers at News Corp Australia as of the end of March were over 1.1 million, up 7% compared to the prior year. In the first three quarters of fiscal year 2024, News Corp delivered strong profit growth and we fervently believe that the company is firmly on a pathway to continued success. Our trusted premium intellectual property resonates in an era of polarisation and amidst a rising tide of AI-fuelled falsehoods and farce. For us, AI stands for authentic and authenticated intelligence, not artificial intelligence or the artifice of intelligence. As always, we remain sincerely grateful for the astute leadership of Lachlan and Rupert Murdoch and for the sage support of our board, investors and customers, and for the sterling efforts of all of our employees. One final note. For more than a year, our colleague, Evan Gershkovich, has been falsely and cruelly imprisoned in Moscow. In public and not-so-public ways, we are actively seeking his release. We deeply appreciate those who have assisted the cause, and we sincerely look forward to his emancipation. I now turn to Susan Panuccio for additional details of our performance in Q3.