News Corporation (NWS) is a media conglomerate with a wide range of assets: filmed entertainment; television, which includes the Fox broadcast network and 27 local TV stations, and cable network programming; direct-broadcast satellite television (Sky Italia); and publishing which includes marketing and newspapers in Australia, the UK, and the U.S. About half of overall sales come from outside the U.S.
News Corp is permanently looking for new markets. Indeed, it is ahead of its peers in expanding in Asia and Europe. Although it is widely known that making movies is extremely volatile, News Corp.'s large library of motion pictures and television shows including Star Wars, The X-Files and The Simpsons reduces this volatility and generates annual cash flow.
Although recent acquisitions have not succeeded, the company has taken risks successfully in the past. Examples included the launch of the Fox television network in 1986 and Fox News in 1996.
News Corporation has spread its presence in many countries thus broadening its client and product portfolios. The company primarily operates in the UK, Continental Europe, Australia, Asia and Latin America, apart from the U.S.
Chase Carey, president and chief operating officer has said in this regard:
“Internationally, we now reach over 1 billion cumulative subscribers, up over 15% from a year ago, and fee businesses like STAR India lead Indian Television and set new program genres, and setting market share levels not seen since 2005. While the Italian and German SKY platforms will lead chats hundred of thousand subscribers in calendar 2011.”
News Corporation operates in a business that is much affected by economic cycles. Actually, it has been striving to add diverse revenue streams. For such purpose, it has started to charge retransmission and affiliate fees from cable and satellite partners for the right to retransmit broadcast programming. It has also taken a leap towards an online subscription-based model for general news content. For example, News International, a subsidiary of News Corporation, has started charging readers for online content for The Times of London and Sunday Times of London with effect from June 2010.
Of course, there are also some risks that News Corporation has to face. One of the main ones is the health of the economy. Also, the company greatly depends on agreements with third-party owned television stations. The dependence on third-party owners has inherent risks.
The loss of these carriage agreements has the potential to affect the company s revenue and operating results adversely.
Even though News Corporation's international presence helps to widen its customer base among other positives, fluctuations in currency exchange rates can adversely impact the company's top-line.
The company may increase its exposure to new media; a large acquisition could destroy significant value if the firm were to overpay.
In terms of quarter results revenue was up 7% led by mid to high teen’s revenue growth for the Cable Programming and Film Entertainment segments.
Total segment operating income in the first quarter was $1.39 billion, a 21% improvement over the $1.15 billion reported a year ago.
As of June 2011, the company had about $13.5 billion in debt and $12 billion in cash. EBITDA is expected to cover interest expense 8 times on average through fiscal 2016.
The fair value estimate has increased from $17 to $19 per share due mainly to the profitability forecast. The fair value estimate implies forward fiscal-year price/earnings of 15 times, enterprise value/EBITDA of 7.4 times, and a free cash flow yield of 6.8%.
Revenue is expected to increase at an average annual rate of about 2.5% during the next five years and sales forecast includes a 1% sales decline in fiscal 2012 due to publishing and filmed entertainment sales decline of 12% and 3%, respectively. Over the next five years, the company may expect an average annual growth of 7% at the cable networks, 2% average annual growth for the filmed entertainment division, and flat growth for the television segment.
Operating margins may average about 17% through fiscal 2016 as the higher margin cable networks business becomes a larger portion of the firm's overall operating profit. Roughly 15% of the fair value estimate comes from News Corp.'s 39% stake in British Sky Broadcasting.
Every business good performance is matched with a strong management. In this regard, Chairman and CEO Rupert Murdoch started with his family's small newspaper firm and built one of the largest global media conglomerates.
Murdoch's past successes include starting the Fox broadcast network and Fox News Channel in the United States. Recent acquisitions of Dow Jones and MySpace have not fared as well.
Murdoch wants his family to remain in charge at News Corp. when he retires. However, Chase Carey, president and COO, will probably take over the position if it becomes available in the next five years, as he is more prepared for the role.