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News Corp sees massive organic growth

While the newspaper printing presses are slowing down, billionaire media mogul Rupert Murdoch isn’t having any trouble printing money!

News Corporation (ASX: NWS) this week reported its third quarter results, which saw revenue jump to US$8.4 billion. This was an increase of 14% or US$1.14 billion on the previous corresponding period (pcp). Around half of this increase can be explained by the inclusion of German pay TV company Sky Deutschland and Fox Sports Australia, however the remaining US$627 million of increased revenue reflects organic growth at the Cable Network Programming, Filmed Entertainment and Television divisions.

Unfortunately for shareholders, the result at the bottom line wasn’t so impressive. After adjusting for a number of one-offs, earnings per share for the third quarter were US$0.36 compared with US$0.37 in the pcp. It’s definitely disappointing to see a decrease in underlying earnings after such a big increase in revenues. However judging by the share price reaction, up nearly 3% on the day, the market must be betting on the profit margin expanding again.

It’s obvious that the screened entertainment products, such as cinema, DVD, and particularly cable television, are the engine room of News Corp while the newspapers, magazines and websites struggle. Seven West Media (ASX: SWM), Ten Network (ASX: TEN) and Village Roadshow (ASX: VRL) all offer screened entertainment and content production too. As the chart below shows, the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has far outperformed Seven and Ten in the last 12 months; while News Corp and Village have both outperformed the index.  Free-to-air TV has been caught between a rock and a hard place; as they’ve struggled to capture value from their customer base.

tmchart

Source: Google Finance

Foolish takeaway

CEO of Seven West Media Don Voelte recently stated “we believe FY 2013 was the worst of it for our company on a net profit after tax basis.” If he’s right, then there is certainly potential for the free-to-air TV companies to refresh themselves and improve their profitability from this point.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Tim McArthur owns shares in News Corp.

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