News Corp (
) is a media conglomerate that competes with New York Times (
), Time Warner (
), Disney (
), Viacom (
) and CBS (CBS) in a variety of businesses ranging from
broadcasting and cable networks to filmed entertainment and
publishing. The company also owns the social networking website
Our price estimate for News Corp stands at
, which implies a premium of over 20% beyond market price.
News Corp acquired MySpace for $580 million in 2005. At that
time, MySpace might've been considered one of the more dominant
social networking platforms available. But the tides have turned.
It wasn't until early 2008 that Facebook reportedly surpassed
MySpace in monthly unique visitor totals, but Facebook hasn't
looked back since, leaving MySpace in the dust. MySpace's
struggles have continued as Facebook has continually gained
momentum. While Facebook has more than 500 million users, MySpace's
count appears to be less than a third of that (at under 150
We estimate that MySpace constitutes roughly 2% of News Corp's
stock value, which by our analysis puts its equity value at about
$1 billion. Compare this to Facebook's valuation implied by a
recent Goldman Sachs (GS) investment and the game isn't nearly
as close as total user statistics might make it seem. Goldman's
investment implies a whopping $50 billion value for Facebook.
Clearly MySpace is no longer in Facebook's league. So what is
News Corp doing to stop the bleeding? It seems like a more targeted
approach, coupled with cost cutting, is the new gameplan.
Strategic Change and Business Trimming
News Corp officials have amended their strategy in regards to
MySpace with a more targeted focus on functionality. The company
has been looking to redesign the site as part of a transformation
from a social networking focused site to a network for promoting
music and video content. The strategy also involves leveraging the
user database of competitors, like Facebook. This could be a
significant move for the site as it would alleviate direct
competition with Facebook. If you can't beat 'em, join 'em.
News Corp also announced that it will reduce MySpace's workforce
by nearly 50% with the termination of roughly 500 employees. With
the prevailing issues concerning MySpace's profitability and growth
potential, the move could create a bit of breathing room on the
cost side for the site to adapt towards its strategy.
However, MySpace remains just a drop of water in the ocean for
News Corp. As MySpace contributes a mere 2% to our estimated stock
value for News Corp, the upside impact from a site re-design is
minimal. On the flip side, despite media attention on continuing
financial struggles at the site, the potential downside impact
should be little cause for concern to investors.
Drag the trend line in the modifiable chart above to see how
various EBITDA margin scenarios for MySpace could impact News
Corp's stock value.
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You can see the complete $20.17 Trefis price estimate for
News Corp's stock here.