News Corp (NWSA)

Global media and publishing company News Corp (NASDAQ:NWSA) reported Q1 CY2025 results exceeding the market’s revenue expectations, but sales fell by 17.1% year on year to $2.01 billion. Its non-GAAP profit of $0.17 per share was 27.5% above analysts’ consensus estimates.

Company Overview

Established in 2013 after a restructuring, News Corp (NASDAQ:NWSA) is a multinational conglomerate known for its news publishing, broadcasting, digital media, and book publishing.

The advent of the internet changed how shows, films, music, and overall information flow. As a result, many media companies now face secular headwinds as attention shifts online. Some have made concerted efforts to adapt by introducing digital subscriptions, podcasts, and streaming platforms. Time will tell if their strategies succeed and which companies will emerge as the long-term winners.

Competitors in the news publishing and media sector include The New York Times (NYSE:NYT), Gannett (NYSE:GCI), and The E.W. Scripps (NASDAQ:SSP).

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. News Corp struggled to consistently generate demand over the last five years as its sales dropped at a 1.4% annual rate. This was below our standards and suggests it’s a low quality business.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. News Corp’s recent performance shows its demand remained suppressed as its revenue has declined by 6.1% annually over the last two years.

We can better understand the company’s revenue dynamics by analyzing its three most important segments: Dow Jones, News Media, and Book Publishing, which are 28.6%, 25.6%, and 25.6% of revenue. Over the last two years, News Corp’s Dow Jones (media subsidiary) and Book Publishing (general publishing) revenues averaged year-on-year growth of 2.8% and 3.1%. On the other hand, its News Media revenue (general media) averaged 3.3% declines.

This quarter, News Corp’s revenue fell by 17.1% year on year to $2.01 billion but beat Wall Street’s estimates by 0.8%.

Looking ahead, sell-side analysts expect revenue to decline by 3.4% over the next 12 months. While this projection is better than its two-year trend, it's tough to feel optimistic about a company facing demand difficulties.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

News Corp’s operating margin has risen over the last 12 months and averaged 9% over the last two years. The company’s higher efficiency is a breath of fresh air, but its suboptimal cost structure means it still sports mediocre profitability for a consumer discretionary business.

In Q1, News Corp generated an operating profit margin of 7.5%, up 2.2 percentage points year on year. This increase was a welcome development, especially since its revenue fell, showing it was more efficient because it scaled down its expenses.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

News Corp’s EPS grew at a spectacular 21.8% compounded annual growth rate over the last five years, higher than its 1.4% annualized revenue declines. This tells us management adapted its cost structure in response to a challenging demand environment.

In Q1, News Corp reported EPS at $0.17, up from $0.11 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects News Corp’s full-year EPS of $0.87 to grow 3.1%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

News Corp has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 8.1%, subpar for a consumer discretionary business.

News Corp’s free cash flow clocked in at $539 million in Q1, equivalent to a 26.8% margin. This result was good as its margin was 9.4 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

News Corp historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6.4%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, News Corp’s ROIC has stayed the same over the last few years. If the company wants to become an investable business, it must improve its returns by generating more profitable growth.

News Corp reported $2.10 billion of cash and $2.84 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.48 billion of EBITDA over the last 12 months, we view News Corp’s 0.5× net-debt-to-EBITDA ratio as safe. We also see its $14 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing News Corp beat analysts’ revenue, EPS, and EBITDA expectations this quarter. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 2.8% to $29.29 immediately following the results.

Updated: May 15, 2025 at 10:54 PM EDT

Before making an investment decision, investors should account for News Corp’s business fundamentals and valuation in addition to what happened in the latest quarter.

We cheer for all companies serving everyday consumers, but in the case of News Corp, we’ll be cheering from the sidelines. To kick things off, its revenue has declined over the last five years. And while its spectacular EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities. On top of that, its projected EPS for the next year is lacking.

News Corp’s P/E ratio based on the next 12 months is 31.5x. At this valuation, there’s a lot of good news priced in - we think there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $35.63 on the company (compared to the current share price of $27.94).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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