News Corporation

underpinned by recurring revenues and expect to report strong results in the fourth quarter. Some themes by segment. At Dow Jones, we expect continued strong revenue performance and improved margins. At Digital Real Estate Services, Australian residential new-buy listings for April rose 19%. Please refer to REA for more detailed outlook commentary, which now assumes lower operating cost growth. At Realtor, we hope to see continued revenue improvement, albeit the overall housing recovery could be impacted in the shorter term by rising mortgage rates. At book publishing, overall HarperCollins trends remain favorable, and we expect to benefit from a stronger front-list program. At news media, we expect to incur some incremental costs compared to the prior year related to the rollout of the California Post, but should also see some benefits from new content licensing revenues. While third quarter cash flows were impacted by the timing of working capital, we expect strong free cash flow growth for the fiscal year despite moderately higher capital expenditures as we had communicated earlier this year. With that, I'll turn it over to the operator for Q&A.

Thank you. We will now start the Q&A session. Please submit your questions to one per participant. If you have joined via the Zoom application, please use the raise hand functionality to ask a question. If you have joined via the audio line, please press star nine. Questions will be answered in the order they are received. We will now pause a moment to assemble the queue. Our first question will come from Elsa Lay with UBS. You may now unmute and ask your question.

Hi, thanks for taking my question, Robert and Lavanya. I've just got one on Dow Jones Energy and the investment required to build out new energy benchmarks. How are you thinking about sort of the balance between continued investment into building these new benchmarks versus the return profile? And are you able to potentially quantify any investments required? Thanks.

Also, I think you can see in the way that we have developed that business in recent years that we do, as you suggest, balance very carefully both in investment and returns. Overall, the professional information business accounted for about 40% of revenues in Q3, but a significantly larger percent of EBITDA is a higher margin business. And that is one reason for the record profitability margin at Dow Jones itself. And there are certainly positive trends at risk and compliance where revenues rose 19% and a 12% increase at Dow Jones Energy.

Thank you, Elsa. Layla, we'll take our next question, please.

Your next question will come from David Karnofsky with JP Morgan.

Hey, thanks. Robert, you continue to report a nice upturn in realtor growth this quarter, and this is happening even amid still high mortgage rates. I guess assuming you did see a kind of better macro environment, how are you thinking about the potential uplift from that? And assuming you get that revenue, how do you think about flowing through that to EBITDA versus sort of leaning into investment either into adjacencies or AI functionality?

It's a very thoughtful question. The renaissance of realtor has really preceded the recovery of the overall US housing market, which remains subject to the vicissitudes of mortgage rates. And in fact, at realtor, a core real estate revenues rose by 15% and represented 77% of total revenues despite the sluggishness of the market. Now, we and obviously aspiring property owners are Subject to a certain extent to the whims and wisdom of the FOMC and their rulings. But what this accelerating revenue increase at Realtor and we've had successive quarters of double digit increases in revenue. tells you is that the team has done an extraordinary job in building the base, sorting out the software, and is also benefiting from targeting higher premium homes, which of themselves bring higher premiums, and building on the successful expansion into adjacencies, including seller, new homes and rentals. And so when you look at March existing home sales, which are a paltry 3.98 million homes, well below the historical average. So that suppressed demand will at some stage be emancipated. And Damien Eales and the team have ensured that a realtor is primed to take full advantage of any upturn.

I'd just add, Robert, that I think the team has, as you said, Damien and the team have done an absolutely brilliant job. And visit shares are up at 31%, which is six times that of homes.com and three times that of Redfin. We continue to invest in the brands and you can see the benefit of that flowing through. I think I mentioned in my prepared remarks that revenue per existing home sales are now at a 20% higher level than they were in 2022. And the reason I'm calling that 2022 is because That was kind of the high watermark from a housing perspective. But you can imagine that with this much higher revenue per house now as the real estate market comes back, as Robert mentioned, we are positioned to really take full advantage of it.

Thanks, Dave. Layla, we'll take our next question, please.

Your next question will come from David Joyce with Seaport Research.

Thank you. And thinking about your risk and compliance and energy offerings, I think that you've really got accelerating demand these days. Are there areas that your clients are asking for more products that you can develop internally, organically, or where you might have opportunities to do some more tuck-ins?

David, we're constantly re-evaluating the portfolio, but I think you're right to suggest that the product extensions are possible. And the team at Dow Jones is very vigilant in taking advantage of opportunity, which is why the business is growing. are prospering at the moment. But given the volatility in macroeconomic circumstances and also the continuing regulatory vigilance of governments around the world, imperative for companies and their boards to minimise risk and maximise compliance remains real. And secondly, the changing patterns in energy markets, in particular the surge of US exports to the rest of the world, is of itself creating a new customer base, which we can take advantage of without necessarily increasing investment.

Robert, if I could add. I mean, during the Dow Jones Investor Day, we did point out that the risk and compliance market is indeed enormous, $3.7 billion, and it's growing at 11% to 13%. We believe there are several opportunities to continue to grow the business, both organically and inorganically. Inorganically, we recently completed and we are getting to the anniversary of the integration of Dragonfly and Oxford Analytica, which have played an enormously big role during the Iran war, gathering a lot of attention and interest. And organically, I mean, we talked about it at the investor briefing. but we have a big wide space, both from an international perspective, as well as we've done really well with corporates versus financial institutions. And there is plenty of room for us to continue to drive growth in those areas as well.

Thank you, Dave. Leila, we'll take our next question, please.

Your next question will come from Ensha Rakofsky with Evans & Partners.

Hi, Robert. Hi, Lavanya. So my question is also around potential AI opportunities. I suppose, are you able to talk about the broad quantum of additional revenue from partnerships with AI platforms that you could receive? And if you can't give us specific numbers, perhaps how does it compare with what you've contracted to date with Meta and OpenAI? And again, maybe just drilling down into that, how much will the meta open AI partnership still live on a combined basis? I know you can't talk about individual contracts, but if you can talk about it on a combined basis, that would be useful.

Thank you. And so we obviously can't discuss the precise details of confidential deals. But the meta agreement is an important partnership, as is our agreement with OpenAI. And both agreements are more than purely transactional. We'll be exchanging insights as the use of AI evolves exponentially. And you will be able to see the impact in our accounts over the next decade. few years. There's no doubt about that. As for AR itself, we are in the midst of advanced negotiations with several companies, and it is clear that many have come to recognize that the purchase of IP is as important as the acquisition of semiconductors or the securing of stable energy sources. IP powers AI. IP is an input imperative. And as always, there is a mix of wooing and suing. We would prefer the former, but we will never shy away from protecting our property rights. The integrity of creativity must be safeguarded. And for example, as for the perplexing perplexity, we are now not the only media company that has brought an action. And that's because we would argue that the IP excesses have been so egregiously egregious that that even certain other media companies have noticed. Now, we're looking very much forward to the discovery process because we have full confidence that fascinating, illuminating material will surface. We will always be open to a settlement, but the figure needs to be meaningful. And the deals do keep rolling. Bloomberg, for example, buying Dow Jones AI riots, the $1.5 billion anthropic settlement project, the OpenAI partnership, the Meta agreement, and various other negotiations. Now, the way to think about these negotiations is that there will be substantial deals with the larger horizontal AI companies and then multiple meaningful agreements with specialist verticals who require both archive and updates in their areas of specialist expertise. So these are indeed propitious times for our IP.

Thank you, Ancho. Leila, we will take our next question, please.

Your next question will come from Craig Huber with Huber Research.

Yes, hi. Thank you. Can you speak, if you would, about the benefits you guys have are getting internally from the use of AI? And is there any way of quantifying what the annual cost savings is at this stage from using AI here to save costs, et cetera, make your company more efficient? Anything on that front you can help us with?

Sure. Maybe I can start. Craig, thank you for your question. I divide up the benefits that we're getting from AI into a few different areas. The first I'd say is in helping to make our products better, more accessible to consumers and including new revenue streams. Obviously, the most obvious one is the licensing agreements that we have with the big platforms, but outside of that, we have seen significant benefits that we've been able to build AI into making Factiva more user-friendly and more widely usable. We're seeing that in our book publishing business where we're able to use AI. We're testing AI for both translation as well as for the creation of audiobooks. There's numerous examples of where on both Realtor and on REA using conversational search. I can go on. There's a long list of things that are in play that can help us to drive revenue growth. In terms of efficiencies, the most obvious ones right now is in coding and using AI to be able to develop some of our product features. faster, to be able to test them using AI versus using people. So there's a whole efficiency play over there. Also, just being able to assist our people in getting work done, whether it's in the newsroom or whether it is in back office operations. There's tremendous opportunities for us to be able to get work done more efficiently and effectively. And every one of our businesses are pursuing every one of these opportunities.

Thank you, Craig. Leila, we will take our next question, please.

Before we take our next question, a quick reminder that if you'd like to ask the question, please use the raise hand functionality at the bottom of your Zoom window, or if you join the audio line, please dial star nine. For our next question, we'll go to Brian Hahn with Morningstar.

A question for Lavinia. Can you please talk about the drivers of the big big reduction in losses in the other division? And whether you think there's a sustainable step down in those other losses? Thanks.

Yeah, other segment represents kind of our the cost of running the total corporation outside of the business units. And what we saw is in quarter three was reduced expenses. not reduce losses necessarily, and that was related most particularly towards our stock compensation calculations. For a full year, I would expect that the other segment will be similar to the prior year and potentially slightly lower.

Thank you, Brian. Leila, we'll take our next question, please.

Your next question will come from David Fabris with Macquarie.

Yeah, hi, thanks for taking my question. I'm curious how we should think about the earnings profile for the news media segment. Are you able to talk about the startup costs from the California Post or the impact from the News UK in the quarter? And then just thinking about these two pieces, do we annualize them going forward or how do we think about them over the next three quarters?

David, you can see in the news media segment that revenue over the year was 5% higher. So the decline in EBITDA reflected modestly tougher trading conditions in Australia and the UK, and more significantly, the launch costs of the California Post, which is certainly not an extravagant investment, but an investment nonetheless. And for context, we've launched the California Post on the back of the rebounding profitability of the New York Post and look forward to expanding our revenue and profits over time. But we should be very clear about the broader context of the news media segment. That segment reported net decline in EBITDA of $18 million, including those launch and marketing costs. For the company overall, EBITDA rose 18%. And our profit margins rose from 14.4% to 15.7%. So I think that does give you a sense of the contemporary context of the news media segment.

I think just to add a couple of things. One is this segment has had a strong track record of being able to drive cost efficiencies year on year. We've seen this. the early part of this year and last year with the work that the news uk team and building out a partnership with bmg which has significantly helped to drive efficiencies and operation in operating costs on the print side of things and that partnership has is they're actually expanding it which should deliver further efficiencies going forward in australia i would call out the team as well in streamlining operations and helping to drive year-on-year cost reductions. You know, kind of looking at how do we think about it going forward. Quarter four, we'll see some benefits from some content licensing revenues while we continue to invest in the California Post, which, as Robert said, we're being very disciplined about.

Thank you. David, Leila, we'll take our next question, please.

At this time, we have no further questions. I'll now hand over to Michael Florin for closing remarks.

Well, thank you, Leila, and thank you all for participating today. Have a wonderful day, and we will talk to you soon. Take care.