Is News Corp a screaming sell after announcing its full year results?

It hasn’t been the best of years for shareholders of News Corp (ASX: NWS). Its share price is down over 10% in 2016 and looks unlikely to retrace these declines any time soon following the release of disappointing full year results.

Highlights from FY 2016 include (in USD):

  • Revenue dropped 3% year on year to $8,292 million.
  • EBITDA fell 28% to $684 million.
  • News and Information services EBITDA dropped 65% to $214 million.
  • Digital Real Estate Services EBITDA grew 71% to $344 million.
  • Book Publishing EBITDA fell 16% to $185 million.
  • Cable Network Programming EBITDA fell 8% to $124 million.
  • Diluted earnings per share of 30 cents.

So what?

As you can see above, there’s clearly not much to get excited about for shareholders at the moment. In fact, even the strong performance of News Corp’s Digital Real Estate Services segment isn’t actually as great as it first appears.

Although the segment received a boost from the strong performance of REA Group Limited (ASX: REA), EBITDA growth in the segment was primarily a result of a one-time gain of $122 million related to the settlement of the Zillow litigation at Move.

Zillow reached a settlement over allegations of trade secret theft lodged against two of its executives that used to work at Move. Without this one-time gain segment EBITDA growth would have been 10.4% for the year.

Elsewhere, Foxtel revenue dropped over 10% to $2,379 million in US dollars. But in Australian dollar terms revenue increased 3% thanks to an increase in subscribers, no doubt much to the joy of Foxtel’s co-owner Telstra Corporation Ltd (ASX: TLS). However, EBITDA fell as a result of increased investment in programming and continued investment in the company’s Netflix competitor Presto.

Now what?

Today’s result means New Corp’s shares are trading on a high multiple of full year earnings. In my opinion it is is too expensive for a company exhibiting next to no growth in the majority of its businesses.

The only bright spot as far as I am concerned is its real estate segment. But rather than invest in News Corp for that, I would suggest investors buy REA Group. That way they get all the growth without the baggage.

As well as REA Group, instead of investing in News Corp I would suggest taking a look at these three new breed blue chips. Great prospects and strong dividend growth make them buys in my opinion.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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