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.