News Corporation (NWSA) Earnings Call Transcript & Summary

Stay on time here. Very pleased to have Lavina Chandrashekar, CFO of News Corp. with us today. Lavan you, welcome.

Thank you, Jason.

So I I really like News Corp. But I find sometimes investors maybe some investors even though you're a good-sized company are less than late. So I want to start with just a very basic question. Just if you wouldn't mind just walking through the key segments that News Corp has very quickly just in terms of level setting for everyone. That would be a good place to start.

Thank you, Jason. And I really like [indiscernible] . So make to faster, please. I'll focus on the first 3 -- our core growth engine segments first and then talk about our fourth segment later. Our 3 growth engines are the DadJones business the digital real estate business and appeal and Sao publishing business. On Dow Jones, the businesses -- a part of it is the direct-to-consumer business. You'll be familiar with brand names such as Wall Street Journal. Barron's IBD market watch. And then the second part of the Dow Jones business, our B2B business, which is Dandan Risk & Compliance and Daddones energy. And those are the 2 segments of the Dodges business that have been the outsized driver of growth for the Dadas business so far and expect it to be in the future. The digital real estate growth engine includes REA in Australia, our digital real estate portal in Australia and includes realtor.com. And realtor.com is, I believe, one of the must underappreciated parts of our portfolio. And book publishing is HarperCollins, that's a cash machine. And that's, I think, all investors like cash machines. The fourth pillar of our business is our traditional media business. This is where the company started from. And I can help people remember that a number of our brands in the news segment are century sold. I mean the New York Post was founded by Hamilton, you should go check out the new Hamilton on the New York Post app, a very modern wearing glass plus Samit. We have the Times of London, which goes back several centuries as well. And these are publications that have just an absolute wealth of historic content, but also current reliable, dependable content. And it's this content that is turning out to be an incredible asset in this age of AI. And we are able to monetize this content with AI platform deals that really help us to add incremental value to our business.

Okay. That's a great overview. -- you just wrapped up your fiscal '21, and I thought the results were actually really good. I mean, the top line was good. The margins were good. Earnings growth was great. Free cash flow is great. How sustainable would you say the growth is I mean, is this -- do you feel like -- because I mean, you correct me if I'm wrong, it feels like fiscal '26 was your best year in 4 years, 5 years?

It was our best year of the last 3 years, but by a small margin because this is a business that has grown 14% EBITDA growth in fiscal '24. 14% EBITDA growth in fiscal '25 and 15% EBITDA growth in fiscal '26. What was really special of fiscal '26 is also the fact that we grew cash flow by 40%. And that's on a revenue growth rate of 7%. So this is a business that has -- it's not a business that just had one really great year. It's a business that has posted 3 consecutive years of really strong growth rates. And I think that's really a big driver of why I think we're such a special business. .

And if you had to point to where investors should be most optimistic based on your earlier comments, you think it's really going to be in the Dow Jones B2B part, that's where investors should be most excited?

Definitely, the Danes B2B part. But I think what makes New Scop special. It's really 3 things. So the first is our overall portfolio and the strength of our portfolio comes from our 3 growth engines, the brilliant brands that we have within these growth engines. It comes from the global scale that we have. It comes from the results that we post. I mean we have been able to restructure our portfolio on a consistent basis divesting assets such as Foxtel and adding on bolt-on acquisitions on a regular basis into our 3 growth engines, and this has helped accelerate our growth. . And it's not just that we've done big divestitures. We've also -- on a continuous basis really helped to simplify the portfolio. In the last quarter of fiscal '26 alone, we divested REA India and moving .com. These help to concentrate our investments into our 3 growth engines. And the investments that we are making in these 3 growth engines are turning into positive results. You see that in the numbers that I quoted. You see it in the fact that 61% of our revenue is recurring revenue. a very small portion of our revenue base is now advertising revenue. We are a digital -- 61% of our revenue is digital, and most of it is recuring revenue. And this is 3x what it was at the time that we spun out the company. and separated from our bigger parent company.

Which was what 2014?

That was 2030 -- '12, '12 or '13 and then the other thing that makes New cop special, which is, I think, is something that I'm not sure how many investors appreciate it, but I worked in 3 companies before coming here. lip companies, consumer products companies. I was at P&G, I was at Mondelez, I was at Diaco. I have never seen an organization, and this is true across all of our businesses that is so curious with such high tenacity, restlessness, I mean there's no complacency in this business. And I think that's a special -- the core ingredient of why I think investors should be optimistic about new scope.

Can I tell you -- this goes back even to the old news court before the split with Fox. But I remember one of the things I was always struck is that you would always have some businesses and you have them today some cash cows, some investments that were sort of in growth mode and you're constantly sort of just shifting the portfolio where today's growth driver may become tomorrow's cash cow, but you will find some new growth driver, right? You're constantly sort of just reinvesting the portfolio.

Absolutely. I mean, like some of these AI licensing deals as an example of the kind of the curiosity and the desire to find value in our portfolio on a continuous basis. And I do think that for us, the pursuit of maximizing shareholder returns. I'm first and foremost. And I think that's what makes us such a valuable stock.

That's great. So I want to talk a little bit about AI because you've got a couple of deals in place. You said it earlier, you think AI may benefit you in the future. There are some investors that are a little bit nervous about the downside of meaning they say, Well, if I'm going to use this as an example, if Google search migrates to AI overviews, then you're never going to get any of the referral traffic and therefore, there's sort of downside. And so we may all look at the AI licensing money is good news, but there's a -- some investors think there's sort of a trade-off for their downstream. Is that -- is that a fair characterization? Or you guys run through all this math and you say, well, look, when we do a licensing deal, it's true, but there's definitely more upside than downside. Does that make sense?

We definitely believe that there's more upside than the outside from AI for the business. And we've seen it in our results. I mean AI has been around for a bit now. And you have been seeing some of the impact to Google traffic for a bit now, and you still see the consistent results that we've been able to post. And for us, I think I'd say 3 things on what the sources of value are to AI. The first is, and I mentioned this before, we just have this absolute wealth of content, and it's not just historic content, more importantly, it's current content. And what we've seen, even in the last couple of years that I've been at News Scope is the hyperscalers are recognizing the value of this content ever more than they did before. And why are they recognizing the value of that content? It's really very simple. It's because their consumers are getting increasingly skeptical of AI slop and are really looking for reliable sources, dependable sources of content. And that's what we have in our portfolio. And so we are able to monetize the value of that intellectual property in deals such as what we have with open AI and what we have with Meta. And it's not just these big hyperscaler deals. We also have deals with on the Dow Jones business, we have a deal with Bloomberg as an example. At the investor briefing that we did for Dow Jones, a few months ago, we talked about having 20 other such deals. And as Robert says, we are continuously in conversations with others as well. Now we would prefer to make deals. We do not believe that litigation is a preferred way of dealing with any issues. But at the same time, we have also been very clear that we will stand up for making sure that we get adequately compensated for our intellectual property. And we have a couple of cases going on on that front. That's what we call Robert Callstats strategy. So that's one value driver of AI. I think the second value driver of AI is the benefits that we are seeing and that we are confident we'll see in terms of revenue growth and our ability to mitigate costs. And we're seeing that in terms of some of the innovations that we are bringing forth into our product portfolio, on REA, on realtor as 2 examples of it. I mentioned Hamilton on the New York Post. That's a really cool AI feature. Be careful, though, when you use Hamilton because I found myself one day like 25 minutes in conversation with Hamilton and almost missing my next meeting because it's so addictive. But that's definitely a source of growth for us as well. And from a cost perspective, we're seeing the benefits of in terms of being able to reduce our cost of coding, our speed of bringing products into the marketplace, creating new designs for covers for books on our hopper Collins business. simplifying our operations, whether it is from an HR perspective or a finance perspective, I mean we're definitely seeing AI as being a driver of value to us.

That's great. So I can't remember when the Analyst Day you had for Dow Jones, was that earlier this year?

March.

Okay. You laid out this $1 billion EBITDA target by 2030. And I think that was relative to about $660-ish million for the fiscal year you just ended, which seems like quite a bit of growth. What gives you confidence to sort of step out and look through fiscal '27 '28? Is that 4 years and sort of have that much growth. especially in the wake of what investors would say is, oh, these information services businesses are the ones that are going to get hurt by AI, right? That's the bare case narrative.

Well, let me first -- let me answer that question to Pat. What are going to be the drivers of growth. And then I'll talk about why I think our business is different and protected and where AI is actually going to be beneficial to us are not this value drag as is being predicted. . On the first part, what are the drivers of growth? Why do we believe in the kind of the ambition of $1 billion that we put out there. It really comes from the fact that we expect growth to come from our B2B part of our Dow Jones business. That's risk and compliance, and that's energy the energy market, the TAM of the energy market is $8 billion, and that's growing at 8% to 10%. The risk and compliance market is $3.7 billion. and that's growing at 11% to 13%. These -- both of these markets, our business in these markets have much higher margins than what we have on our traditional consumer products. within the Dow Jones portfolio. And so as growth accelerates and this is what has been happening. It's not a future forecast only. It's also what we have consistently seen here over the last separate years. As that B2B business grows faster than the consumer side of the business, we have a built-in operating leverage. And so that's definitely one of the drivers of growth. We also see a strong path of growth on both enterprise subscriptions as well as direct-to-consumer subscriptions. On direct-to-consumer subscriptions, I mean, we have world-class journalism and this -- and our presence in international markets, as an example, is really small. And we know that there is a big market out there for us. AI will help with that in terms of translation. and being able to expand to international markets. And on enterprise customers, I mean that's everyone here in the room. And this is where organisms essential. -- for business decision-making, also for personal decision-making, financial decision-making. And we do believe that there is a strong opportunity for us to continue to grow our consumer subscription business as well and to grow yields on our consumer subscription business as well.

When you say yields, what does yields mean?

Well, through smarter pricing, as an example. I mean, we've taken pricing on the Wall Street Journal full price up from $39.99 to $44.9. We're also doing more from a pricing perspective with introductory offers and for tenured subscribers. So there's definitely an opportunity for us to do more on that. I mean our gemolism is so valuable. I think it's invaluable. I think 449 still gives us plenty of room to continue to grow our revenue base. . I don't want to forget the second part of your question, Jason, which is what -- why do we think we will not get overtaken by this AI wave, especially on the B2B side of our business. Our B2B business is proprietary data. And it is proprietary data that plays in a very complex dynamic regulatory environment. So what do I mean by that? Let me break it down, and I'll break it down in the context of risk and compliance and then in the context of energy. On risk and compliance, the cost of getting it wrong for a financial institution, whether it is doing something around the sanctions list or any of the many things that we do on risk and compliance is disproportionate to how much these institutions pay for our product sets. We have decades of reputation built in this space. And that proprietary data and that reliability of a Jones is what protects that business. I want to make a shameless plug here for our Investor Day was back in March. and Joel who runs the risk and compliance business presented some really good examples of both why this business is protected from a reputation perspective and some examples of what happens to organizations that get it wrong on risk and compliance, but also present at 3 very, very interesting bite-size case studies of how our data is proprietary. Why is it proprietary? And why is it protected? I'd encourage everybody to go watch that if you haven't or even just refresh your memory on that. And then on the energy side of the business, we have 150 at least at the time of the Investor Day, we had 150, I know we have a bit more now, 150 exchange-traded benchmarks on energy. And these are built into contracts that organized companies need to have to be able to buy and sell these commodities. This is not something that you can scrape off the Internet using AI and replace with and so the safeguards that we have around our business, we don't like the word moat because that's kind of goes back to mid eval times. But it is indeed the protective moat that we have around our business.

That's great. You -- I think it was on your last earnings call, you talked a little bit about tactical sort of pressure within energy because of the Middle East conflict. Is that something -- can you just unpack that a bit and describe when or if that could come back to the extent that hostilities in the Middle East?

Well, I'm glad to say it has come back. So it was a quarter 4 phenomena, and it was really in terms of the sales cycle being delayed because of the uncertainty that existed in the Middle East. And what we're seeing now in quarter one is a strong pipeline of contracts, and we do expect energy growth to be stronger in the quarter. .