News Corporation (NWSA) Earnings Call Transcript & Summary

Great. Good morning, everyone. Welcome to the News Corp presentation as part of the Credit Suisse 24th Annual Communications Conference. For those who don't know me, my name is Entcho Raykovski, and I cover Australian media at Credit Suisse. Very pleased to introduce Almar Latour, the CEO of Dow Jones, one of the divisions of News Corp. Great pleasure to have you today, Almar, with us. And just before we kick it off a little bit of housekeeping. If any of the investors who are listening into the call today having questions, feel free to email those directly to me. You can get them through to me at [email protected]. I've certainly got plenty of questions to go through. But as I said, if there are any from those online, please feel free to email those to me. So Almar, as I said, thank you for joining us.

To begin with and to set the scene, do you mind just providing us with a brief overview of the Dow Jones assets. And if you can just talk about the benefits for Dow Jones from being part of the News Corp Group as a whole.

Yes, absolutely. And Entcho, thank you for having me. Good morning, everybody. So think of Dow Jones as the news data and analytics information service provider. When you pull the lens out from our company, you really see 5 categories of -- types of business. One is business news and news. One is wealth and investing. Energy and commodities, risk and compliance and then the fifth is research for professionals. And these each loosely correspond with our brands, business news, of course, the Wall Street Journal; wealth and investing connects to the Barron's Group and IBD; energy and commodities are recent acquisitions, but also some parts of the newswires; risk and compliance as a stand-alone. And then the research for professionals as a brand, also known as Factiva. What we do, and the red thread throughout all of this is we provide trusted information, news, data analytics, and we provide that to communities of professionals. Now some folks on this call, perhaps refer to our businesses as B2C and B2B. But as we manage the business and as we grow the business, we look at it as B2P, right? We reach professionals rather they're in the traditional B2B part or the B2C. This is one group that has a different information needs and so it's a super community of many communities with specific interests. We are -- and it's important to keep in mind, we are marked by recurring revenue and growing recurring revenue as a percentage of the whole. The majority of our revenue -- far majority of our revenue is digital, and that's growing. All of our content, all of our information is must have. It's in many cases, not really optional because you're learning something new, whether it's about the Fed or about energy pricing or about sanctions. This is very sticky content but that is important and sometimes unavoidable to help you make decisions as you navigate a business environment and such. And so when you have all these 5 different parts with those attributes, we are creating an ecosystem here and making sure that there's an interplay between these 5 different parts. Now your question on News Corp. So we're a very happy part of News Corp. We love the global reach and scale. Global is part of the News Corp DNA. You see that reflected in Dow Jones leadership as well as a News Corp leadership. So that DNA is very familiar and it's really the same. There's an entrepreneurial culture where responsible risk taking is promoted. There's highly supportive -- I can't emphasize this enough, highly supportive ownership and leadership and so that I personally experienced, but I know that we experience that across the board. There's access to skills, access to capital of course. News Corp has supported north of $1.7 billion in capital for recent acquisitions that are really transformative for Dow Jones and help our existing strategy come to full fruition, very supportive Board. And so there's also then a balanced portfolio and balanced risk. So there are many, many attributes that make this a great fit and also at a personal level, deep familiarity of course, with the people running News Corp.

No, that's great. And if I can just pick up on your comments around the acquisitions and the capital which you've deployed. You've made a number of acquisitions over the last 2 years, IBD, OPIS, Base Chemicals. Can you comment a little bit on those businesses that you've acquired and how they fit within Dow Jones?

Yes, of course. And I hope you noticed that just yesterday, we also announced that we agreed to acquire data set from the Singapore Solar Exchange. And so this keeps on going. So the exciting part is that we are investing in our strength. We are investing in the execution of our strategy. So this means we're adding recurring revenue. We're adding high-margin businesses. We're adding and extending our digital presence. So with each of these moves, we've gotten stronger on the 3 metrics that I just mentioned. And so that is very deliberate. Also each of the businesses that we've added revolve around what makes Dow Jones so unique. And that's that information that is reliable. So in this case, data, news, analytics. And so this fits incredibly well with the 5 business areas that I've mentioned. So these are effectively verticals that revolve around news, data and analytics. So if we take some of these specific acquisitions, I can highlight, so IBD fits into wealth and investing category, what it's adding there alongside Barron's and MarketWatch, and a few other assets. It adds analytical tools, it adds a diversity of almost 2 dozen paid specialized investing products and investing information products. And so that's important because it diversifies that portfolio, it actually makes it more data-oriented, makes it more analytical. And then there's also a spillover of that know-how into other assets. And so that's in wealth and investing, we can talk more about that if you want. And so for OPIS and Base Chem, they are similarly a great, great cultural fit. I can't emphasize that enough. We spent a lot of time with both management teams and with the leadership. We have a sales conference coming up this weekend where there will be a big celebration of this new direction that we're taking together. These are generalistically rooted businesses, but that have built on top of that data and analytics. And so it's a perfect fit with what we have, but it also sets the bar higher for our other business areas. We're learning a lot and so there's a mutual flow of information and know-how. Some examples where we can work together, where we can use the reach and the depth of Dow Jones and the Wall Street Journal on the one hand and then these new assets, ESG is one area where you can see us working together on indices on data, on types of coverage. Coverage, I want to hold up just a little plug, the cover of Barron's this weekend was about gas prices, perhaps no surprise, but OPIS data was driving that. And so we're just a few months in, and we're already seeing these tremendous benefits that are driven, first and foremost, by intelligence and a shared culture.

And given that you've now completed both OPIS, Base Chemicals, are you in a position to talk about specific synergy opportunities from those businesses or quantify those synergies.

Yes. And so, as I said, we're a few months in. And so the first specific answer is that we're thrilled. We're thrilled because we believe that energy transition is a topic that will reverberate through our lifetimes, it's center stage right now on the globe. We're thrilled because these are great businesses. They are recurring digital high margin and they offer a great foundation for expansion. And you saw, as I referenced, hopefully, that acquisition already of that solar data set and so you see that's a specific data point as to how we're not stopping our strategy just with that acquisition. We are investing and making sure that we can highlight the specific advantages of OPIS in this case, a tight focus on the energy segment. So OPIS generated $10 million of revenue in March. That's the last publicly available data on that. And so it's -- we got it at a very attractive valuation, which we believe should enhance Dow Jones and News Corp value. And so you will see a cascade of efforts of collaboration and new products and also enhanced existing products. And so that said, we're off to an amazing start and we're very excited.

And it sounds -- I mean, just what you're saying, it sounds like you're not quite done with acquisitions? Or have you -- do you feel like you've got enough to integrate for the time being? Are you happy with the current portfolio of assets? Or do you feel like there are other acquisition opportunities out there?

Yes, a fair question. So we are first and foremost, of course, after making these investments. Concentrating on integrating those very remarkable assets, making sure that those teams also feel deeply included. And we're very pleased with where those acquisitions are to date. They're performing well. Early days with Base Chem just 2 weeks ago that we closed. But there are businesses that we understand. The brands are strong. Strong history of revenue growth, a strong history of entrepreneurialism and so we're really happy with those acquisitions. And then -- that means we're confident in our organic growth story with those assets as part of our family. But we will also continue to reinvest and strengthen Dow Jones. So the focus remains on integration, but it's a volatile time in media and information services, as you know. And so as always, we are going to monitor and we'll scan the market for opportunities. And just yesterday, we saw a great opportunity that we shared with the market. And so that's sort of the balance, and that's how I would describe how we're looking at this.

Got it. Maybe if I could ask a question, which I've heard from a few investors over the -- over recent quarters. Dow Jones has seen fairly strong growth in subs more recently. To what extent do you feel that's a kind of pull forward as opposed to a structural increase? And do you expect those sort of growth rates to moderate over time?

So first off, we're delighted by the subs growth that we have seen. We believe and we know that this is driven by demand for reliable information. And to look around the information landscape, look around the news landscape -- and there's so much noise out there that -- the #1 feedback that I get when I talk to customers is that reliable information at a time when, frankly, there's a lot of chaos in the world. And it's not just COVID, as you know, there's an energy crisis. There's a health crisis, there is an impending food crisis, there's inflation, there's so much more, right? And so this is where we are at our very best. This is where we live up to our purpose. So what we have seen, we call that a trust bump. Because it's really driven in our assessment by that trust and the need for trusted information, that's structural. So this is our differentiator unbiased news. And so with COVID, we saw -- as we did with the concurrent other crisis that helped crystallize our unique differentiator. And so that complexity around the world prompts demand. That complexity in our view, will only increase the need for -- to navigate that with reliable information will only increase. And we've seen that across the portfolio, and I think this is important. So as the energy pricing issues started proliferating around the world just a few months ago, we saw the demand for information on coal, for example, go way up. And so we are very diversified even as we cater to a large group of professionals. And so there are many opportunities where we see high-quality news, data and analytics demand only growing. We also have, of course, it's not just the content itself. We've backed all of that up with investments and growing our digital reach, and we think that our newly acquired properties will also benefit from that because, again, it's a large global group of professionals. We've upgraded our CRM program. And of course, we've heard many times about our dynamic paywall and then investing in journalism and content and data itself. And so we are very, very firm believers that there is structural demand for our type of reliable, uniquely reliable information. And it's just -- we all know that there's so much debris and noise out there.

And Almar, while we're talking about subs growth, and if we can perhaps specifically focus on the Wall Street Journal. It's interesting when you look at the data and a lot of the recent growth has come from the Americas. I guess, do you expect this to persist over time? Or do you expect other regions like EMEA and APAC to be greater drivers of growth longer term? I mean, again, this is a debate often happening with investors are you looking to expand beyond the Americas. Is that going to be the growth driver longer term or will you focus more on the core operations.

Yes. We mentioned News Corp is global and its DNA. The management team here has a global outlook. I personally have worked at 3 continents. And so we're very aware that our working premise is that everyone who is in business worldwide should come across the Wall Street Journal, should come across Dow Jones information. I don't want to separate out the two too much because those products need to be in front of people every day multiple times. That's the premise. So we fundamentally believe that there's a market there. We know that international subscription specific to the journal are only 11%, 12% of the total sub base. So that is an opportunity that's there for us. The Americas, we believe that there is still a much larger market that we can reach inside our core market. But a lot of the topics that we cover, whether it's business news, whether it's wealth and investing, whether it's energy, whether it's risk, whether it's research. These are global topics with a common denominator among professionals in many different markets. And so we are internationalized in that regard with a corporate emphasis, I mean. But -- so yes, we see opportunity there.

Okay. And on a related topic, back at the Investor Day, which you had in September 2020, you spoke about at the time, doubling the subs base. I think at the time, it was about 3.8 million. Do you still see that as a realistic goal over time? And what sort of time frame would you put to get into that goal? I mean I'm conscious that you've gone, I think, since then from 3.8% to 4.8%. So clearly, there's been an increase. But how do you think about those targets?

Yes. So that's 19 months ago when we added about 1.1 million if -- with our counting since then but we're counting. So that is still the ambition and there are many milestones that we are excited about along the way. We announced just recently 3 million Wall Street Journal digital-only subscriptions, Barron's Group going through a threshold of 1 million subscriptions, which nobody thought was possible. The growth in Barron's Group subscriptions has been helped in part by the launch of our MarketWatch subscription program just over a year ago. So that has been a stunning success. So we are on track with our own aspirations. We are -- we feel very comfortable that there is that high demand at a time of great need for reliable information. And that's really what's driving this game, not frivolities, but the critical information to make decisions.

And I don't want to focus too much on that Investor Day, given that, as you said, it was 19 months ago, but at the time, you spoke about the opportunity for margin expansion as well. Do you still see that as an opportunity? I mean how do you think about the Dow Jones margins? Can you see an expansion from the current level of circa at 20%. And I mean, I'm very conscious that inflationary pressures are very much playing a part in the way companies and divisions are thinking about costs right now. How do you think about expanding margins in the context of those pressures?

Yes. First, sort of the more structural part here. And so as we've seen margin improvements in FY '21 and year-to-date in FY '22. So we have has seen substantial margin improvements. And so if you look at our portfolio, and this is a portfolio-wide question, as our -- the proportion of information services that go deep that are driven by data and analytics. As that grows, those are high-margin businesses that we see growth that are not sensitive to cyclicality. And so as we become more digital, as we have more recurring revenues, we firmly believe that our margins will reflect that over time. And so our strategy remains focused on driving that digital subscription business, digital circulation revenue, which again helps EBITDA margins. And so that's the big story on which we're focused right now. And in the face of recession and subscription fatigue that's perhaps playing out, the latter playing out more broadly. We're looking to invest, and we have been investing to make sure that our value proposition is constantly enhanced and also adapted to the circumstances that we face. And so we are convinced that at times of crisis, and we have seen plenty of evidence for this that the need and the demand for our type of information actually becomes stronger. It certainly is a -- it's one thing that people need in order to navigate all of this.

Got it. So you mentioned the increase in digitization. I think digital as a percentage of total circulation revenues is currently sitting at about 68% or certainly was there in the third quarter of FY '22. Do you see there being a natural ceiling to where digital can get to? Or do you expect print to essentially phase out over time?

Sure, do you see a natural ceiling to digital in your life or anyone on this call for that matter. So there's a big push toward digital. We're investing in digital. We see the trajectory of digital continuing to be healthy. And so we're focused on that. And then print will be there for those who want it. There are still customers who give us feedback that, that is part of their experience. And so we want to make sure that we deliver in any way that customers want us, but digital of course, is the red thread that runs through every one of our businesses.

Got it. again, I know I referenced questions, which I've had, but clearly, markets have been choppy. So you get some similar questions, which are recurring. There are, I guess, some concerns in the market around media stocks and how they behave depending on the economic environment. How do you feel Dow Jones in position -- is positioned if there is an economic downturn? And how has it behaved in prior periods, and it could have been different this time around given that you've got a large proportion of recurring revenues?

Yes. So like any company, of course, we are not immune to economic climate. It's -- and of course, the impact on revenues, depending on the gravity of that climate. But as you said, our revenue is recurring. Our business is digitally driven. And as I just emphasized, that continues, that percentage continues to have a healthy trajectory. We're reliant on analytics and data that companies really need, enterprise customers need and individuals as well. The need for trusted and unbiased news and data continues to grow. And our experience during such times can actually grow. Compared to previous such periods, we're much more diversified than we were, for example, during the Great Recession we were more digital than we have been in other cycles. And we have a game plan that we feel will remain unchanged. We have our focused investments, our emphasis on growing reach on making sure that our news, data and analytics are differentiated and unique and serve these professionals at a time where we all know that the need for reliable information will only go up. And so that's how we see the time ahead.

I just wanted to touch on risk and compliance in sort of a few minutes that we've got left. I mean that's a business which doesn't always get as much focus, but has obviously had very strong growth over a period now. We've noticed that, that growth has slowed a little bit in recent quarters. I mean, still in the double digits. So very much impressive. But is there a specific reason for that growth slowing? Or is it just much tougher comps? And as you're cycling those comps, it just become so much more difficult. And I guess in answering that question, if you can comment on how you think about the opportunities for that business and future growth.

Yes. First off, I would recommend anyone who's not familiar with it to take a close look at that business and also take a close look at the world news all around us because it's part of the core business of risk and compliance is center stage in news right now with Russian sanctions, for example, where that also has become a specific driver of our business. So risk and compliance continues its strong revenue growth, as you indicated, and thanks for emphasizing that double digits in Q3 for FY '22. And that marked the 27th consecutive quarter. There was a currency impact, but we are optimistic about continued growth of Dow Jones Risk & Compliance. And this is the macro trends that we see that are also underpinning the rest of our approach to all of the Dow Jones portfolio. And that the world is getting more complex. There will be more regulations, more sanctions, more complexity as a result of all that, which means that there is a need, again, and this is the refrain. There's a need for reliable data, for reliable news and analysis. That is even -- this is true for each part of our portfolio, especially true for risk and compliance. So we do not see that trajectory change. And again, so what's happened in Russia is just one other timely reminder of the value, the immense value of this business that it brings to Dow Jones and News Corp which I hope will be acknowledged more, but also to the end customers. I mean these are pivotal things if you miss out on data like this, you might face tremendous fines.

Certainly, someone who works at an Investment Bank, I can assure you, compliance is a big focus. Maybe a final question before we wrap it up. Would it make sense in your view for Dow Jones to operate on a stand-alone basis or are there benefits of you being part of the News Corp Group. They outweigh perhaps any sort of theoretical valuation upside, which would come from that?

I'm sure, you know as well, and you know that that's an ownership question. But what I do urge you to do is to look at the strength of Dow Jones inside News Corp and inside News Corp context and value us properly within that context. So News Corp itself has decided and decided a while ago with our enthusiasm to support it, that reports Dow Jones as a separate segment, and that gives a window into how we perform. We welcome that responsibility that comes with that closer level of reporting. And we're really looking forward to providing a level of detail that gives a true reflection of the performance of our assets. And so we encourage you to take a very close look at Dow Jones on an ongoing basis and happy to jump on a call any time.

Okay. That's very useful. We have just hit 10 a.m. So I think we're out of time. We -- it has been -- Almar, it has been very useful talking through all the aspects of Dow Jones. Your time is much appreciated. So thank you and for all investors who've dialed in. Thank you for your time. We'll wrap it up there.

Thank you, Entcho, and thank you, everybody.

Thank you all.