News Corp. (
NWS
) competes with other media conglomerates like Disney (
DIS
), CBS (
CBS
), Time Warner (
TWX
), Viacom (
VIA
) and New York Times (NYT) in the media and entertainment business.
Our price estimate for News Corp's stock stands at
$23.21
, which is a premium of roughly 29% to market price. A recently
published
Reuters article
states that News Corp has finally started the process to sell off
Myspace, which the company acquired in 2005. Given the competition
from other social networking sites like Facebook, Myspace has
struggled to hold its ground. We take this opportunity to look at
Myspace's value contribution to News Corp and our view on News
Corp's step.
Myspace Less Than 1% of News Corp's Value
We estimate that Myspace constitutes less than 1% of News Corp's
stock. The low contribution in value is a result of both low
current revenues when compared to overall News Corp's value, as
well as grim outlook with regards to site traffic. Myspace's unique
visitor count has been on the decline as users migrate to other
websites like Facebook and Twitter for social networking. While
Facebook has clearly risen to great heights, Twitter surpassed
Myspace's traffic as well in late 2010.
Why News Corp May Go With Selling Option?
News Corp has been looking at multiple strategies with Myspace
like redesigning the site as part of a transformation from a social
networking focused site to a network for promoting music and video
content. The company has also reduced headcount to to save on
overhead, but it seems like none of the initiatives is working out
and News Corp does not consider Myspace as a profitable investment
anymore.
Google and News Corp signed an advertising deal in 2006, which
was renewed towards end of 2010. But it seems that its traffic is
dropping down to levels which might hamper the guarantee of ad
revenues from Google to News Corp. In addition to this, Myspace has
suffered an exodus as many of its key employees have left due to
its woes.
News Corp bought Myspace for $580 million in 2005 and could look
to sell it for a decent haircut of what it paid for it. While we
have not heard of any estimates for valuation, News Corp could sell
it for much less than what it paid for in the hopes of salvaging
some value without the burden of operating it.
Potential parties that might be interested in buying myspace
include private equity and venture capital firms, mobile social
networking sites like Mocospace and social gaming developers like
Zynga, according to the reports. Presumably there is more strategic
value for these players than fro News Corp.
See
the complete $23.21 Trefis price estimate for News
Corp's stock.