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 media networks to filmed entertainment and
We estimate that about
13% of News Corp's value
can be attributed to its newspaper business which includes Wall
Street Journal, UK newspapers, Australia newspapers as well as
revenues from Dow Jones. While we are admittedly conservative in
our forecasts for the print newspaper market in general, we remain
bullish on the growth prospects of Wall Street Journal revenues. We
anticipate that Wall Street Journal's revenue contribution to News
Corp's total newspaper business will increase from about 24% today
to 35% by the end of our forecast period.
We maintain a price estimate of $19.91 for News
, roughly 20% ahead of market price.
Newspaper Industry Taking a Hit
According to the Audit Bureau of Circulations, the circulation
of newspapers in the U.S. declined 5% during the six months ended
Sept 30 2010. Not only has circulation declined, but print
advertisement has also suffered, causing further reductions in
revenues for print newspapers. According to estimates from
eMarketer, the overall advertisement spending in the U.S. is
expected to grow by 3% in 2010 to nearly $169
billion. However, print advertisement is actually expected to
decline by more than 8% in 2010 and about 6% in 2011.
However, WSJ Maintaining its Market Position
According to the Audit Bureau of Circulations, while overall
circulation of newspapers in the U.S. has declined, the Wall Street
Journal was actually able to increase its distribution by almost 2%
during the six months ended Spet 30 2010.
So what is WSJ doing right? The company's affluent reader base
provides better opportunities for News Corp to drive both
subscription and advertisement revenues. WSJ's audience demographic
is very promising for its growth prospects. According to a report
that was revised in early 2009, the average annual income of an
employed WSJ subscriber was more than $200,000, and about 54% of
these subscribers represented top management in their respective
firms. Additionally, the education status of WSJ subscribers is
promising with about 87% of them being college graduates.
An educated and affluent subscriber base can provide a more
desirable target for advertisers. Apart from the sustainability of
advertising revenues that this creates, WSJ's affluent customer
base can also make the journal's aggregate subscriptions more
resistant to economic fluctuations. With WSJ poised for growth, we
estimate slight improvement in newspaper margins, with WSJ's strong
market position allowing it to overcome stunted growth in the
We recently wrote an article contending that mobile devices and
social networking could lift New York Times' online business. (
New York Times Online Can Add +25% to NYT Value
) Shift to digital media could do the same for WSJ and potentially
raise margins beyond our base forecasts. The upside impact of this
effect could add 5% to our price estimate for News Corp of $19.91,
which already stands about 20% ahead of market price.
Drag the trend-line in the chart below to see how various
newspaper profit margin scenarios impact News Corp's stock value.
And let us know your perspective on this metric by leaving
feedback in the comment box below.
You can see
the complete $19.91 Trefis price estimate for
News Corp's stock here.