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Why the News Corp share price is climbing higher despite a $1.5 billion loss

News Corporation, the media company known by Google Finance as NEWS CORP/IDR UNRESTR (ASX: NWS), released its financial result for the March 2018 quarter on Friday, flagging a US$1.1 billion (nearly AU$1.5 billion) net loss.

The budget is weighed down by a US$1 billion non-cash write-down on Foxtel and Fox Sports Australia – the two pay television outlets that recently merged into a combined entity in which News Corp has a 65% stake, with the rest owned by Telstra Corporation Ltd (ASX: TLS). In addition, the company reported a US$165 million non-cash impairment charge on marketing business News America Marketing, which also suffered a decline in revenue.

Aside from these one-off items, the group controlled by Rupert Murdoch had a decent performance. Quarterly revenue grew 6% on the previous corresponding period, to US$2.1 billion. The highlight from the report is the digital real estate services business, with revenue up 27% thanks to product innovation and improved yield at both realtor.com and REA Group Limited (ASX: REA), which saw its share price increase 5% on Friday on its own quarterly update. Book publishing also performed well, with revenue up 6%.

The news and information division – including mastheads like The Wall Street Journal, The Times and The Australian – enjoyed an increase in paid digital subscriptions, which now account for almost 30% of the segment’s revenue, but the gains were partially offset by lower print advertising.

The group’s EBITDA fell 15% to US$182 million, on higher costs related to the launch of a dedicated National Rugby League channel and higher expenses at News UK.

News Corp was among the ten most shorted shares on the local market on Monday, but has so far defied short sellers’ predictions, with the stock 1% up to $22.52 on Friday, and 3% up since the start of the week.

Foolish takeaway

I think traditional media corporations face tough competition, with internet giants offering alternative content and taking away advertising revenue, so I’m not sure I would bet on this sector.

However, the update had some pros aside from the big one-off items that weighed on the result. I’m particularly impressed with the growth in digital subscriptions to news outlets, a sign that the group is capable of renovating its most traditional operations.

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Motley Fool contributor Tommaso Autorino has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia has recommended REA Group Limited. 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 Scott Phillips.

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