News Corporation

Welcome to the News Corp's first quarter fiscal 2025 earnings conference call. Today's conference is being recorded. Media will be allowed on a listen-only basis. At this time, I'd 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 2025 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 I'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. There is no doubt we have begun fiscal 2025 robustly, with record first quarter revenue and record first quarter profitability. Revenue rose 3% year-over-year to $2.58 billion, while profitability surged 14% to $415 million. Our profit margin rose from 14.6% a year ago to 16.1%, and recurring circulation and subscription revenues continued to expand as our reliance on a sometimes volatile advertising market has declined markedly. Our net income jumped from $58 million last year to $144 million, and our EPS was 21 cents, compared to 5 cents in the same quarter last year. That we have achieved these record first quarter results in macro conditions, which were far from auspicious, tells much about the successful transformation of News Corp over the past decade. Meanwhile, the just completed election has highlighted the importance of trusted journalism in a media maelstrom in which some journalists routinely mistake virtue signalling for virtue. Artificial intelligence harvests and recycles informational infelicities and so it is critical that journalist inputs have integrity, which is why our partnership with OpenAI is so crucial and why we will certainly seek to challenge AI companies misusing and abusing our trusted journalism. We have indicated in the past that we would prefer to woo rather than sue artificial intelligence companies, hence the alliance with OpenAI. But we have reached a point where litigation is also essential. Dow Jones and the New York Post have started proceedings against the perplexing perplexity, which is selling products based on our journalism. And we are diligently preparing for further action against other companies that have ingested our archives and are synthesizing our intellectual property. We hope that litigation will not be necessary, but we intend to defend vigorously our rights and our journalism. This matter is an imperative for our society and for our shareholders. We are also appuning the blatant biases of ad agencies and ad associations, which we believe are boycotting certain media properties solely on the basis of personal political prejudices. That is detrimental to companies which advertise, and obviously enough to the shareholders of those companies, which are being denied the opportunity to optimise audience reach. The ad heavens are certainly not in equilibrium. As for the structure of our company, we continue to examine changes to maximise our overall value for shareholders. It is true to say we are in active discussions over the future of Foxtel, and we believe all who have studied the worth of our individual assets and our current share price can easily see that that price does not reflect the collective value of our businesses. In our view, a clear gap remains, despite the approximately 38% increase in our share price over the past year. The most glaring discrepancy is how the market has assessed the value of REA in our portfolio. By the way, it is really worth highlighting the prescience of Lachlan Murdoch in his early investment of less than two million US dollars in cash, which gave us a strategic stake that has become a 61% share in a company worth 31 billion Australian dollars, based on recent trading, and has created immense value for all our investors. If you need me to do the math, 61% of 31 billion Australian dollars is approximately 12.5 billion US dollars. Given that our market cap is roughly 17 billion US dollars, that means that Dow Jones, including the Wall Street Journal and the lucrative B2B businesses, plus Harbour Collins, plus Realtor, plus the Times of London and the Sun, plus our UK radio network, plus our Australian papers, plus Foxtel... and a few other companies, are apparently perceived to be worth less than $5 billion, which we believe simply defies investing or mathematical logic. Now let's examine each sector's performance and the company's actual value more closely. In digital real estate, we had a particularly strong quarter at REA in Australia, where listings nationally rose 7% in the quarter and have continued to increase at a healthy level through October. We expect that positive momentum will be reflected in second quarter earnings. There was a certain amount of excitement in recent weeks as REA submitted a thoroughly reasonable bid to acquire the UK market leader, Rightmove. But we applaud the REA leadership team's financial rectitude in steadfastly refusing to overpay for the asset. That the Rightmove board did not engage constructively was disappointing, but we are absolutely confident in the potential of REA and that potential was obvious in the excellent results the company announced today. At Newscore, we have made several important acquisitions in recent years, in book publishing and in particular to expand the professional information business at Dow Jones. But these acquisitions have been knowing investment at rather reasonable prices. And the efficacy of that disciplined investment strategy is reflected in our buoyant earnings. In the first quarter, digital real estate revenue overall increased by 13%, while profitability rose 15%. This double-digit growth was driven by REA reaching all-time record quarterly revenue thanks to strong listing volume and yield and continued growth at REA India. We believe REA's potential is far from fully realised, as the company's expansion into financial services remains in an early but burgeoning stage, and the development of premium products for agents and for families seeking to buy or sell a property continues apace. In the US, the property market remains challenged with punitively high mortgage rates, which have had a noxious impact on sales. But this should be a relatively temporary trend, and we fully expect a rebound as those rates decline. Listings have increased year over year, with a more than 30% increase in active listings in September. But we are seeing particularly low sales of existing homes, which impacted lead volume. Our team is positioning the company for the rebound, with product enhancements such as dynamic mapping, the bolstering of our tech stack, and building the brand halo, reflected in a 2% increase in unique users, despite the softness in property sales. As with REA, Realtor.com continues to diversify, including expanded sell-side and new construction offerings and a rental partnership with Zillow, and revenues at each of those adjacencies expanded. At Dow Jones, which has more than doubled in profitability since resegmentation four years ago and which had a strong fiscal 2024, our B2B data and information services businesses continued to prosper. In Q1, the professional information business expanded revenues overall by 8%, with 16% growth at risk and compliance and an 11% increase at Dow Jones Energy. For context, our risk and compliance revenues over the last five years from fiscal 2019 to fiscal 2024 have more than doubled, representing 18% annual compound growth. With global instability and increasing regulatory vigilance, there is no sentient law-abiding company that does not want to minimise risk and maximise compliance. At Dow Jones Energy, we are excited by the recent acquisition of A2i, a leader in AI-powered technology used to optimize fuel pricing strategies, which will complement Opus's pricing solutions. On the news side, total Dow Jones digital-only subscriptions grew 15%, including a 10% increase at the Journal. And we expect circulation revenue growth to improve over the course of the year as we cycle through the phases of promotional pricing. As for advertising, that market remained volatile and affected overall growth rates, with digital advertising down 5%. For clarity, it is worth reiterating that advertising as a share of total Dow Jones revenue has fallen from approximately 38% in 2014 to 15% in the most recent quarter. And importantly, advertising revenue at the news media segment has fallen from approximately 35% of our total revenue a decade ago to 7% in the most recent quarter, with just over half of that figure being digital, underscoring how much we have evolved. At book publishing, HarperCollins had another splendid quarter, with profitability expanding 25% and a margin lift of more than 200 basis points, thanks to strong digital and backlist sales, including J.D. Vance's Hillbilly Allergy, which sold 1.5 million units across all formats during the quarter. In addition, A Death in Cornwall by Daniel Silva, The Au Pair Affair by Tessa Bailey, and The Wicked Collection, which benefited from the movie tie-in, also performed well. Bible sales were again robust during a time of acute political uncertainty and intense global conflict. Digital revenue growth at HarperCollins of 15% was driven by the continued success of audiobook sales, which climbed 26%, and renewed revenue growth in e-books, which increased 7%. Looking ahead, we anticipate that momentum will stay strong ahead of the seasonal gifting period. We also have the release in Q2 of Scheer's new book, as well as The Blue Hour by Paula Hawkins and Unleashed by Boris Johnson, the former British Prime Minister, whose puckish perceptions are compulsively compelling. As the pithy Boris once observed, the beauty and riddle in studying the motives of any politician is trying to decide what is idealism and what is self-interest. And often we are left to conclude that the answer is a mixture of the two. At subscription video services, revenue increased 3%, as growth in streaming more than offset declines in linear revenues. While this quarter was impacted by Hubble costs, as is normal with any product launch, those costs have come down sequentially, and we expect them to continue to fall. Foxtel's strength is reflected in its successful transition to streaming, which now accounts for nearly 70% of paid subscribers, while ARPU has continued to rise. Advertising on our streaming platforms rose over 45% and accounted for over 40% of Foxtel's advertising revenues, with notable strength at KO, our sports streaming service. Meanwhile, broadcast churn of 11% fell 70 basis points sequentially, and broadcast ARPU rose 4% on prior year to AU$89. Sports are the cornerstone of Foxtel's success, with record rugby league and Australian audiences for the just-completed season, and a fascinating summer of sports looming. These trends drove strong free cash flow in the quarter and enabled the further repayment of shareholder loans. At News Media, profitability increased 14% despite the challenging macro environment. Across our mastheads, we are starting to see the positive impact of our landmark agreement with OpenAI, as well as the impact of our cost discipline. In Australia, our digital subscribers rose to 1.13 million, and the New York Post Digital Network recorded 103 million monthly unique users in September. The retooling of TalkTV meant a much lower cost-run rate as we focused on video and deployed the acquired skills to enhance the video offerings at The Times and The Sun. Our UK results also benefited from cost savings related to our new print joint venture with The Daily Mail Group and a reduction of investment at The Sun US, which was bruised by sudden, capricious algorithm changes. That necessary focus on costs is part of our absolute determination to sustain and invest in our journalism. Now, we come to another significant moment, a moment that is, for me personally and professionally, tinged with a certain sadness. Susan Panuccio, our esteemed Chief Financial Officer, is stepping down to take a time out from the hurly-burly of business to devote time to her beautiful family. Susan has played an absolutely crucial role in the transformation of News Corp over the past eight years. She is an empathetic, enlightened, energetic leader who has helped me, the board and her colleagues navigate a transition that has fundamentally changed the character of the company. We have reported record results during her tenure, and that is a testament to the success of her sterling efforts. Rupert and Lachlan have made very clear their genuine appreciation for Susan's contribution to the company, and her positive influence will definitely resonate for many years to come. Susan, in her inimitable way, is irreplaceable. But we are honoured to announce that our new CFO is Lavinia Chandrasekhar, formerly the CFO of Diageo, the global drinks business where she worked closely with the great Ivan Menezes, the late chief executive of Diageo. Lavinia was previously the CFO for the North America business as well as Global Head of Investor Relations at Diageo. Prior to that, she had significant and global financial leadership roles at Mondelez and Procter & Gamble. Susan will stay on in her current role through the end of the calendar year and then transition to an advisory role for six months to assist Lavinia in making the transition from bourbon to books and from gin to journalism, though it's fair to say that journalists and gin are well acquainted with each other. We salute Susan and we welcome Lavinia. The result of the US elections means that one of our cherished directors, Kelly Ayotte, is leaving our Board to become the Governor of New Hampshire. Kelly too has played a pivotal role in our successful evolution. Her wise counsel has been priceless for me, and her intelligence, her insight and her integrity have been obvious to all who have served with her on the Board. I know that Rupert and Lachlan are sincerely grateful for her service and New Hampshire's gain is surely our loss. And now, for the final time, I give you Susan Panuccio, our brilliant CFO and my dear friend.