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News Corp bets on digital property growth. Is it a Buy?

News Corp (ASX: NWS) like many other media organizations is going through a period of change and transformation. The rise of the digital media and the popularity of online websites have adversely impacted print advertising revenue.

In the first quarter earnings report for the financial year 2016, News Corp reported a 4% decline in revenue to US$ 2.01 billion, compared to US$ 2.11 billion same period last year. First quarter Earnings declined by 15% as the print business continues to suffer from challenging business conditions. Foreign exchange fluctuations also had a negative impact on the earnings.

News Corp’s largest revenue generating segment, news and information services proved to be the biggest drag on revenue.  Lower print advertising revenue in Australia and News America marketing, a premier coupon publishing business in the U.S. were primarily responsible for the fall in revenue. Another segment, book publishing faced a similar situation with stagnant or zero growth in revenue base.

However, despite all the doom and gloom in the print business, News Corp is strategically moving away from the print business and towards the digital and online space. The digital real estate services business segment increased revenue by 71% compared to last year. With the recent acquisition of new real estate websites, News Corp has most likely become the world’s largest digital property listing company.

In November 2014, News Corp acquired U.S. online real estate group Move Inc. The acquisition will give News Corp a significant footprint in the online real estate market in the U.S. where it expects the real estate market to keep getting healthier. In Australia, News Corp’s digital real estate business, REA Group Limited (ASX: REA) – the owner of realestate.com.au – provided solid growth in revenue.

News Corp’s Australian Stock Exchange (ASX) listed stock price has lifted by 24.52% in one year. The shift towards a more global and digital future as a strategy is setting the company up for a likely prosperous future. The recently announced takeover by REA Group of iProperty Group Ltd (ASX: IPP) will give the company access to the lucrative real estate markets throughout Southeast Asia.

News Corp’s key competitor in Australia, Fairfax Media Limited (ASX: FXJ) is also pursuing a digital growth strategy. Its online real estate website domain.com.au posted a solid 68% growth in revenue year-to-date (YTD).

Foolish takeaway

Media businesses are in the process of transition from a print-focused to a digital-focused business. The new digital strategies put into place are already showing good results. News Corp’s current share price does not fully reflect the future growth potential from new digital ventures. So a Foolish investor may want to a keep close eye on this stock as it could likely be undervalued.

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Motley Fool contributor Qaiser Malik does not own shares in any of the companies mentioned in this article.

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