Q1 2023 News Corp Earnings Call
Importantly at the Wall Street Journal, despite the tough market paid digital subscriptions increased by over 350000 year over year during the quarter Investor's business Daily launched a paid newsletter market T M to attract younger investors and commissioned and options information App that will present, new analytics for options trading E com.
Plex, but potentially lucrative sector.
With its panoply of premium products Dow Jones has renewed focus on bundling our premium content, including the Wall Street Journal Marketwatch and Barron's. These valuable combinations have already exceeded 200000 subscriptions and we have begun to rollout a bundle featuring WSJ barron's and IBD.
Revenues at the professional information business rose, 40% year over year, we continue to clearly see the benefit of risk and compliance and an environment of intensifying scrutiny by regulators, who are insisting that companies minimize risk and maximize compliance the integration of opus and CMA has been proceeding successfully and they join a burgeoning dao Jia.
And starter and intelligence business, providing an impressive $52 million in combined revenues in Q1 and contributing materially to profitability this quarter Opus and CMA continue to leverage their proprietary data and analytics with new offerings, including carbon indices and are assisting companies and making sense of dynamic market for carbon offset.
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Overall, we are delighted with the tangible progress in our professional information business, which is providing an increasing flow of high yield low churn digital clients.
At digital real estate services. This quarter, we saw resiliency, even though housing market conditions have tightened and become more volatile, especially in the U S. Army a group achieved substantial revenue growth in constant currency on the back of higher pricing increased penetration of its new premier plus enhancement and strong listing value while maintaining its more than three five.
Leading traffic over the competition.
There was also notable audience and revenue growth at Rei, India, which further consolidated its position as the number one property portal in that massive and growing market that move operator of realtor Dot com revenues were down 6%, reflecting relatively similar trends to the fourth quarter Realtors unique users have risen 21%.
The first quarter financial 'twenty, thanks to product enhancements and increased marketing to position and equip the business take full advantage of the inevitable upswing in the market, we are expanding our offerings in rentals and in developing cell side expertise, which we expect will drive profits far into the future.
Military is also taking decisive steps to streamline and optimize the business, while enhancing reinvestment capacity and capitalizing on long term growth opportunities.
Focus on seller leads which are the source of most revenue in the Australian market is building on our recently acquired uplift. The utmost experience has been integrated into key cell of placements across the site, providing sellers the ability to get proposals from multiple agents and offering consumers significantly more choice. Meanwhile, even.
In a challenging housing environment with higher mortgage rates tight inventory and inflation home prices have remained elevated and we note that active listings that realtor improved by 29% in the quarter compared to the prior year period Realtor remains focused on the long term opportunities in what is an estimated $200 billion.
Vessel market.
As mentioned earlier.
Reset affected many publishers in Q1, including Harper Collins this reset relates to Amazon's decision to reduce inventory levels and shutter warehouses and accounted for almost the entirety of Harpercollins revenue contraction and the vast majority of its profit decline this quarter, notably consumer appetite, which expanded during the pandemic continued to be robust.
And provides us with increasing confidence going forward and we are absolutely focused on cost control at Harpercollins and the imperative to improve margins in these challenging conditions.
Key frontlist titles in the quarter included a portion of an unknown woman by Daniel Silva Livewire by Kelly Ripa, and breaking history by Jared Kushner, we are prospering from our global ownership rights to the Lord of the rings trilogy, given the popularity of the Amazon series and we are looking forward to the release of the stories, we tell by Joanna Gaines and colleague Hoover's next work.
Finally, we note that Harper Collins focus last month's acquired sided mill press book Publishers, and independent publisher of quality gift books, Sada mill, specializing cooking wine and spirits and humor books and includes Applesauce press a children's brand its deep backlist should provide an ongoing source of incremental revenue.
At subscription video services Foxtail had another strong quarter streaming subscriber penetration continues to expand and costs have been thoughtfully controlled foxtail has recently renewed or signed valuable long term sports rights and content agreements, including the I F L Ww AE and NBC Universal.
We have obvious optionality at Fox still where the conversation is no longer about how much capital we plan to invest but the potential for capital return.
Boxtel streaming services trained $2 8 million paying subscribers as of the end of September searching 34% versus the prior year and accounting for 63% of the total paying subscriber base.
And binge added nearly three quarters of a million paying subscribers in the posture alone underscoring the potential of Fox tail in our still expanding Australian market.
Foxtail group delivered record audiences for the recent AFL and NRL finals. Meanwhile, Motorsport the Rugby League World Cup and T 20 World Cup cricket.
Bolstering subscriber loyalty as we near the spring selling season.
The news media segment experienced a revenue decline, 4%, though it rose a healthy 6% on an adjusted basis, when taking into account forex fluctuations and other items in constant currency, we saw healthy growth in advertising circulation and subscription revenues at news Corp, Australia circulation revenues, improving constant currency and digital.
Subscriptions exceeded the 1 million Mark for the first time up 13% year over year, New store comp asserted its leadership in the free <unk> environment with an audience of $13 million in the month of September .
Meanwhile, the New York post continued to improve profitability. Thanks in part to a strong increase in digital advertising revenues and the post digital network also flex muscles with a 24% increase in page views, reaching an average of 129 million per week in Q1, and 151 million average monthly.
In September .
At news UK, the Sun's digital advertising exceeded print for the fourth consecutive quarter and accelerated its growth and we're delighted by the success of the Sun Dot Com, which continued to increase its already sizable audience, particularly in the United States and the time Sunday Times also saw a 23% increase in digital paid.
<unk>, reaching 468000, marking its second best ever quarter of digital growth News broadcasting the new name for the radio and TV brands at news UK reported an increase in both reach and listening hours. According to the latest rate jobs report Talksport reached $2 9 million listeners who tune in for more than eight 8 million hours.
10% quarter on quarter, and we expect the imminent World Cup to be a source of audiences and advertising.
News Corp is building on a base that has grown stronger more global and more digital in recent years, we have seen record profitability in each of the last two fiscal years by many key measures are resounding progress has continued digital advertising on the rise streaming surging and subscriptions soared.
Despite the macro economic uncertainty, having streamline and digitize their businesses and reached substantial agreements with the big Tech platforms to compensate us for our premium journalism, we are better equipped to generate increasing value to our investors and our strong cash position means that we have been able to return capital to shareholders and investors.
Fleet in future growth, while honoring our proud provenance, one last point as we announced last month following the receipt of letters from Rupert Murdoch and the Murdoch family Trust. The New School Board of Directors has formed a special committee of independent Board members to begin exploring a potential combination with Fox Corporation.
There can be no certainty that the company will engage in such a transaction, we do not intend to comment further at this time and for that reason, we will not be taking questions. On this topic. Today. We are of course happy to answer your questions about the performance all of and prospects for our business, particularly as it relates to the first quarter of this fiscal year.
As always we thank our investors for their faith and confidence in us and all our employees advertisers readers and audiences for their valuable contributions and enduring support now I turn to Susan to expound and expand on these results.
Thank you Robert we have entered fiscal 2023 with a different macro environment, including volatility in foreign currency impacting our headline results in Australia and U K businesses.
Throughout fiscal 2020, K, we successfully navigated the company today in a position of strength.
By our ongoing cost transformation work, which we have balanced investment and innovation to drive digital expansion.
The first quarter of fiscal 2023 presented some challenges, particularly as Harper Collins, but most of the businesses performed well in constant currency and suffice to say that news Corp remains well positioned given the strength of our asset mix healthy balance sheet and the continued diversification of our revenue base.
First quarter total revenues were approximately $2 $5 billion down, 1%, which included a $153 million or 6% negative impact from foreign currency headwinds.
Excluding the impact of foreign currency fluctuations acquisitions, and divestitures first quarter adjusted revenues grew 3% compared to the prior year.
Total segment, EBITDA was $350 million down 15% compared to the prior year, which saw a record profit with 53% great.
That being said total segment EBITDA this quarter were still up 31% over fiscal 2021, underscoring the material changes in recent years.
Also noteworthy is that the majority of the profit decline this quarter was driven by lower sales from Amazon Keisha, the reset of its inventory levels and the right sizing of the warehouse footprint as well as foreign currency fluctuations neither of which we believe are reflective of underlying performance.
Adjusted EBITDA declined 13% test as the prior period.
For the quarter, we reported earnings per share of seven cents compared to 33 cents in the prior year adjusted earnings per share were 12 cents in the quarter compared to 23 cents in the prior year.
Moving onto the results for the individual reporting segments, starting with digital real estate services.
Segment revenues were $421 million down 1% compared to the prior year.
<unk> include a negative impact of $20 million or 5% from foreign currency fluctuations.
On an adjusted basis segment revenues increased 3%.
Segment, EBITDA declined 14% to $119 million impacted by higher employee costs and increased marketing costs, driven by strategic investment activities at both news and Rei together with negative impact related to currency headwinds.
The increase in investment cost Sydney was due to the expansion into adjacencies, including Salivate rentals and new hires as we focus on the longer term opportunity.
Adjusted segment EBITDA declined 7%.
<unk> revenues were $169 million down, 6% falling 30% growth in the prior year period for the quarter real estate revenues fell 9% driven by lower lead and transaction volumes reflective of the broader industry trends.
Consumer affordability constraints impacted uniquely volumes, which declined 32% in the quarter, although that was a slight improvement from the fourth quarter right.
Those trends were partially offset by price optimization within the traditional lead gen business higher sell through of our hybrid offering market VIP home price appreciation and continued advertising gains.
We also had revenue growth from our adjacencies, including the acquisition of Optimist, albeit these revenue streams are still in the early stages of development.
Well Sarah offerings accounted for approximately 30% of total revenues down from 32% last year impacted by lower transaction volumes, partially offset by higher home prices.
Based on our internal metrics Realtors average monthly unique users were $86 million in the first quarter.
<unk> had another strong quarter with revenues rising 2% year on year on a reported basis to $252 million, which included a $20 million or 9% negative impact from foreign exchange.
Growth was driven by price increases contribution from premier plus favorable depth penetration and product mix and growth in national listings, partially offset by a modest decline in financial services revenues due to lower settlement activity.
April <unk> listings rose, 5% with Sydney, and Melbourne up, 5% and 12% respectively.
Please refer to <unk> earnings release and their conference call. Following this call for more details.
Turning to the subscription video services segment revenues for the quarter with $502 million down approximately 2% compared to the prior year on a reported basis due to foreign currency headwinds importantly on an adjusted basis revenues rose, 6% versus the prior year acceleration from the prior quarter rate of 4% growth.
Streaming revenues accounted for 25% of circulation and subscription revenues versus 19% in the prior year and again more than offset broadcast revenue declines.
Total closing paid subscribers across the folks take rate reached almost $4 5 million at quarter end up 16% year over year with the growth rate, increasing three percentage points from the fourth quarter.
Total subscribers, including trial has reached over $4 6 million.
Total paid streaming subscribers reached over $2 8 million, increasing 34% versus the prior year, and adding 117000 sequentially with streaming subscribers now representing 63% of Fox Health total paid subscriber base.
Kayo paying subscribers reached almost $1 3 million up nearly 19% year over year slightly down from the fourth quarter levels due to typical seasonal patterns with the end of the AFL and NRL seasons in September .
Finish paying subscribers grew a robust 67% year over year to over $1 3 million subscribers benefiting from the release at the house of the Dragon and the popularity of the Fox tell original series the 12.
<unk> ended the quarter with over $1 4 million residential broadcast subscribers down 10% year over year similar to the fourth quarter broadcast churn was 14, 2% compared to 14% in the prior year, partly reflecting the acceleration of migrating subscribers of cables.
Broadcast <unk> rose, 1% to approximately 83 Australian dollars.
Segment EBITDA in the quarter of $111 million fell 3% versus the prior E significantly impacted by currency with adjusted segment EBITDA increasing 5%.
Moving onto Dow Jones, Dow Jones continued to post strong performance in the first quarter with revenues of $558 million up 16% compared to the prior year with digital revenues accounting for 79% of total revenues this quarter up four percentage points from last year.
Results included a full quarter from both the opus and chemical market analytics acquisitions on an adjusted basis revenues rose approximately 6%.
Circulation revenue grew 5% driven by strong year over year volume gains at the Wall Street journal's digital only subscriptions up 13% to over $3 1 million and total Geoff Dow Jones digital only subscriptions also up 13%.
Professional information business revenues rose, 40% and accounted for approximately 35% of segment revenues driven by the acquisitions of <unk> and C&I.
Revenues from the acquisitions are progressing in line with our expectations as the businesses benefited from strong demand across numerous industries, including metals carbon plastics sustainability, biofuels and renewables well he would continue to rise and retention remains strong.
Risk and compliance revenues grew 6%, although currency had a 10 percentage point negative impact on revenue growth given the business has high exposure to Europe and APAC.
Advertising revenues grew a healthy 4% to $94 million, despite lapping 29% growth in the prior year.
Digital advertising revenues rose, 11% in the quarter as we continue to see very strong yield improvement and so growth in all categories, especially in day to day this quarter.
Digital advertising accounted for approximately 65% of total advertising revenues, which increased four percentage points from last year print advertising revenues were down 6%.
Dow Jones segment EBITDA for the quarter rose, 19% to $113 million as margins continue to improve with 50 basis points expansion year over year to nearly 22% helped by the inclusion of Opus and C&I.
Adjusted segment EBITDA for the quarter was down 1%, reflecting higher employee costs.
At book publishing as we flagged during the quarter results were materially handset by Amazon's reset of inventory levels and right sizing of its warehouse footprint, resulting in significantly lower orders and higher returns.
Supply chain pressures continue to impact <unk> and manufacturing costs, but is showing some signs of easing from recent quarters.
As it relates to Amazon, we have not seen similar inventory level adjustments from other distributors or retailers and as Robert noted consumer demand has remained healthy and consumer sales data remained consistent with prior quarters.
For the quarter revenues declined 11% to $487 million and segment EBITDA declined 54% to $39 million.
We estimate Amazon accounted for almost the entire year over year revenue decline and the majority of the year over year segment EBITDA shortfall.
Our backlist contributed 65% of revenues up slightly from last year benefiting from the demand of token titles helped by the premier of the rings of power on Amazon.
Digital sales rose, 1% this quarter and accounted for 23% of consumer sales on an adjusted basis revenues fell 7% and segment EBITDA declined 51%.
Turning to news media, we continue to see relatively strong advertising trends, particularly at news, Australia revenues were $553 million down 4% versus the prior year, largely due to currency, which had a $62 million or 11% negative impact on revenues importantly, despite macro uncertainty adjusted.
Revenues for this segment increased a healthy 6% compared to the prior year due to strength in circulation and subscription and advertising revenues in constant currency.
Circulation and subscription revenues declined 6%, but that included a 12% or $32 million negative impact from currency fluctuations.
Growth in constant currency was driven by cover price increases in the UK, and Australia, and increasing content licensing revenues and double digit subscriber gains across news, Australia, and the times and the Sunday times.
Advertising revenues declined 4% compared to the prior year, which included a 9% or $22 million negative impact from currency fluctuations.
Growth in constant currency was driven by an increase in digital advertising revenues, primarily at the Sun with digital revenue yet again eclipse print revenue, while Australia benefited from strong performance led by a recovery in retail and travel which was impacted by the lockdowns in the prior year.
The New York Post also posted strong digital games segment EBITDA of $18 million declined 47% driven by over $20 million of higher costs related to talk TV and other digital investments together with higher newsprint production and distribution costs across the businesses, which are being impacted by the current inflationary and supply chain.
Challenges adjusted segment EBITDA fell 44%.
Before we look at the outlook for the next quarter I would like to touch on free cash flow first quarter free cash flow is typically lower due to the timing of working capital payments and we remain focused on driving strong and positive free cash flow generation for the year.
Turning to the upcoming quarter, we continue to expect higher costs due to supply chain and inflationary pressures advertising conditions are mixed and visibility remains limited across the businesses. We also expect ongoing foreign exchange headwinds given the current spot rates for the Australia dollar and pound sterling compared to the prior year.
Looking at each of our segments digital real estate services Australian residential new buy listings for October declined 18% as we lap tougher prior year comparisons please refer to <unk> for more specific outlook commentary.
At news, we expect lead and transaction volumes will be challenged in the short term and we will continue to take steps to mitigate those pressures, while balancing ongoing investments with cost discipline.
In subscription video services, we remain pleased with the performance of the streaming products and the ongoing focus of broadcast <unk> and churn as we continue to migrate customers from cable to streaming.
At Dow Jones, we remained focused on the integration of Ifas and CMA advertising visibility remained short term. However, we are expecting a more challenging second quarter. We also expect the ratio of investment in the second quarter to be higher than the prior year as we continue to focus on driving consumer subscriptions and enhancing our PID offerings.
In book publishing supply chain and inflationary pressures continue to persist, albeit are showing signs of easing we still expect headwinds from Amazon in the second quarter, although with strong customer demand, we expect any issues to be short term in nature.
News media like the first quarter, we expect incremental cost in relation to product investments across the businesses, including top TV and other digital initiatives together with ongoing inflationary pressures, including newsprint prices.
Before we open for questions I would like to remind everyone that we will not be addressing any questions related to the special committee and or a potential combination with Fox Corporation as Robert stated earlier with that let me hand, it over to the operator for Q&A.
We will now start the Q&A session.
Linear.
One 4%.
To ask a question, which is the race and feature.
Click on the rates had 10 button at the bottom of the screen.
He has been invited please emilio and begin with your question.
If you have dialed in please press star nine duration and Star six John Yes.
Thank you.
Okay.
The first question comes from Kane Hannan from Goldman Sachs. Please go ahead.
Good morning, guys am I coming through.
Hi, yes kind of loud and clear.
Perfect.
Thanks for the questions. This morning may be just on the book publishing side of things.
Helpful commentary around Amazon and the border inflationary pressures just give us a sense of I suppose the margin decline in the first quarter, some 50 basis points.
You would attribute to Amazons impact and what you would attribute to ask what is the inflationary sort of things that it's probably going to continue for the rest of the year.
And then just as a second sort of quick follow on.
Let's talk about how youre thinking about M&A in the publishing space.
Do you think <unk> would have any of the regulatory pushback the Penguin random house had with the proposed acquisition.
Okay.
Look clearly the supply China is a factor.
Amazon is fair to say, it's a femoral another channel, but meaningful in the first quarter. The combination of both inventory adjustment on warehouse closures clearly created logistical issues, which we trust Amazon will resolve relatively soon but the demand for books is undiminished and we certainly have some blurring titles looming, including John in the guidance.
Colin who though so.
And in the meantime, Brian Murray and his team are resolutely focused on cost control and unnecessarily improving margins.
Simon and Schuster.
Clearly there is much more work ahead for the lawyers at both companies.
Legal documents must already run through many volumes themselves, but it is appropriate that the judge ruled that.
Post merger would create a book behemoths earlier tree Leviathan, a tightening of terms that would will disproportionate weight in the industry for ourselves.
Absolutely resolutely focused on building the Harper Collins business in continuing the integration of Houghton Mifflin Harcourt.
Yeah.
<unk>, maybe just to just to frame the Amazon impact the majority of the EBITDA decrease was.
Jason Amazon.
<unk> had hoped that it would be limited to Q1, but we are expecting to see some impacts coming into the second quarter, but you know all things being well, we'd expect the second half to pick back up in the inflationary impacts.
Have been coming down actually we all seen them slightly offset by volumes that we hopefully expect to see that subside a little bit in the second half.
Thank you Kane Todd we'll take our next question. Please.
Next question comes from David Karnofsky from J P. Morgan.
Oh, Hi, Thank you Robert on Wall Street Journal Digital subscribers can you talk to the sub trends there for the prior two quarters I think you mentioned a tough market wanted to see how you would get factors like new cycle or economy, and then Dow Jones digital ads grew strongly in the quarter, that's sort of that's associated with the macro or would you expect some.
Coming back to the demand debenture.
Okay.
Second part of the question was little unclear, but on digital subs.
We're up 30% for both Dow Jones, the Wall Street Journal titled Subs were up 8% at Dow Jones for one 9 million.
The WSJ to $3 8 million.
What we're seeing.
Yes.
Dow Jones generally is that we're able to take advantage of.
Massive audience, which is.
116 million monthly Uniques, and then gradually.
Push people up the hierarchy of premium products.
Premium price.
Clearly as we've taken on.
Professional information content the ability to take advantage of that opportunity is realized and secondly, we believe in vertical bundling sorry for example market Watson WSJ AWS giant IBD IBD and barron's.
Michael horizontal bundling wish.
Other companies indulgent.
And there is no doubt that youll see over the next six months.
The virtue of those bundles that Dow Jones has just begun marketing so we'll be able to update you in succeeding quarters, but we have no doubt the strategy is a wise one.
David look I think on the advertising we didn't quite catch what the question was but we actually have been really pleased with the performance of advertising Dot Giants have been growing advertising quarter on quarter.
Quite a few quarters now it's been really pleasing and actually has the task.
Our expectations as to how well they've been doing I did say in my comments that we were expecting it to be a little bit more challenge come Q2, Q2 is one of the biggest advertising quarters across our markets, but still pretty early days and we'll see how that pans out, but we do expect it to be a little bit more challenge in the second quarter against a tougher comp.
Thank you David.
Drop down and we'll take our next question. Please.
Next question is from Darren Leung from Macquarie.
Yes.
Hi, guys. Thanks for the help Shirley.
Just a quick one about the subscriber growth.
Quarter on quarter.
Any feel for how much of it's driven by houses the dragon.
This potential offset from cost conscious consumers.
And maybe why that sort of spending that is.
The trend basis, Chris.
Thanks.
Yeah.
We are very pleased with the.
Subscription.
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And frankly tayo.
We have around one 3 million subscribers now.
What we're seeing is.
Barry.
Lifting in the sense that.
Even though.
Streaming subscription has increased notably.
Thanks are up 35%, while broadcast off who is actually higher so we're not seeing the fee had cannibalization.
And what it has done with Fox toe.
It's giving us optionality, which is attribute to the toilet Patrick Siobhan Entertainment, Australia, we've secured long term rights the most watched sports and entertainment in Australia.
I have been working relentlessly to improve that.
Customer experience and the focus not only on what the customer watches, but how they watch and that's why the churn performance has been so good.
Thank you Darren talked down and we'll take our next question. Please.
And next question is from Brian <unk> from Morningstar.
Brian .
Okay top down I think we will take our next question. Please sorry, Brian .
Oh, Brian just got on music.
Hi, good evening.
Hi, Ken.
Brian .
Robert just a quick one.
In digital real estate can you. Please confirm that news Corp is still investing in those.
Hey, Jason season, Similarly businesses in the U S or is it cost cutting the main thing now for the division.
Brian very much.
Because we see them.
A bright long term future for for Rialto and that's why we are indeed investing.
We're really cost conscious.
Whether it's rentals.
Whether it's the sell side as well as the buy side, we're continuing to invest in products. Because there is absolutely no doubt about the long term opportunity that digital real estate presents in the United States and Brian just to just to add to that actual core operating expenses at realtor, a flat within the core business year on.
And actually the increase that we're saving costs year on year at <unk> three adjacencies.
Yes.
Yes.
Thank you Brian .
Thanks, Brian talk and we will take our next question. Please.
Our next question is from Johnny Huynh from Allison partners.
Hey, I just wanted to ask about <unk> again, and then specifically on the <unk> can you talk about expectations on <unk> and then also the demand from advertisers.
Well.
Generally we're very pleased to see.
<unk> performance, bringing it advertising gives us another layer of revenue potential.
And I have no doubt that as the.
Team does it's modeling of that potential it will be able to update you in coming quarters as it is.
Unveiled to the market.
And John I, just just to add to that I think there's been a couple of questions just in relation to the pricing was they really pleased actually with how customers are being retained <unk> and the price rise it's been portrayed.
Very very pleased with that and as Robert said we.
We're expecting strong performance across screens with the content that with cost.
Hey, Julien.
Okay. Thank you very much talk to you and we'll take our next question. Please.
There are no further questions on the line.
Great well. Thank you talk to your honor. Thank you all for participating have a great day, and we will talk to you soon take care.