I won’t beat around the bush: Anyone who is tempted in the slightest to buy shares of the new News Corp (NWSA), which begins trading today along with 21st Century Fox (FOXA), should have their head examined — not just by one doctor, but by a team of specialists.
The New York-based company, which lost $2.1 billion in the last fiscal year, is a hodgepodge of publishing assets that make sense to only one person: Rupert Murdoch. No one would cobble together such a disparate group of assets together today. Potential investors should ask themselves questions like “What does a 50% interest in Australia’s largest pay TV provider have to do with book publisher HarperCollins?”
Speaking of Australia, Americans might not realize how huge the company’s holdings are in the land of Murdoch’s birth.
According to News Corp’s registration statement, the company’s Australian papers — such as the Herald Sun, The Australian and The Daily Telegraph — account for approximately 63% of the country’s newspaper circulation. The company also owns 61.6% of REA Group, a leading web portal for commercial and residential property listings. However, there might be less glimmer to these assets than meets the eye.
Australia’s economy, which is closely tied to China, is a mess. According to the Wall Street Journal, the government there slashed its economic growth forecast in May to 2.75% from an earlier forecast of 3% and said unemployment would rise to 5.8% by 2014 vs. 5.5% now. Not surprisingly, Goldman Sachs puts the odds that Australia, which also recently changed prime ministers, will fall into a recession in the coming year at 1-in-5.
Moving onto the U.K. — where News Corp’s holdings include The Sun, The Times of London and The Sunday Times — the economic situation there isn’t great either. The recovery from the worst economic slowdown since the Great Depression is moving at a glacial pace. At the end of the first quarter, Britain’s economy was 3.9% smaller at the end of the first quarter than it was at its pre-recession peak. That was worse than an earlier estimate that pegged the gap at 2.6%, according to the Journal.
But let’s ignore Murdoch’s well-known interest in the affairs of both countries and ask whether any other media executive such as Time Warner’s (TWX) Jeff Bewkes or even Viacom’s (VIAB) Sumner Redstone would ever amass such large positions in newspapers, which are best a low-growth business, in countries whose economic outlooks are so-so. That’s reason enough to take a pass on this stock.
The company’s U.S. assets only solidify the case.
News Corp’s new CEO, Robert Thompson, and his underlings have been trying for the past few weeks to generate excitement for the stock by talking about the potential for Dow Jones. In May, it unveiled a new product called DJX, which is designed to take on Bloomberg LP, the undisputed king of financial data.
There have been many so-called “Bloomberg Killers” announced over the years, none of which have amounted to much. Could the recent kerfuffle over Bloomberg reporters’ use of confidential customer data present an opening for News Corp? Maybe, but I’m skeptical. The Bloomberg terminal is a well-established product, and a good one at that.
When it comes to Dow Jones and the New York Post, the future is tough. Thompson has openly spoke of the company’s focus on the bottom line. There have been layoffs at Dow Jones, which Murdoch paid $5.6 billion for in 2007, and the Post, which has lost money for years. Murdoch paid a premium of more than 60% for Dow Jones at a time when no one else wanted the company. That seems to have been too high a price.
In interview with Financial Times, Thompson spoke of newspapers being “platforms” — a buzzword that newspaper publishers have used for years. He also vaguely hinted that the scrappy New York Post tabloids might take on Buzzfeed, though exactly how that’s supposed to happen isn’t clear. This is an interesting idea, but again, News Corp’s track record with regards to the Internet isn’t inspiring. The company sold MySpace for $35 million in 2011 … six years after it bought the once-leading-edge web company for $580 million.
Worse, News Corp is as skeptical about newspapers as anybody. The company took a $231 million charge for the restructuring of its papers in Australia and the U.K. in the nine months ended March 31. It expects to take a charge in the quarter ended June 30 of between $1.2 billion to $1.4 billion in its News and Information Services business.
Reporters keep asking Thompson whether News Corp will buy the Tribune newspapers, such as the Los Angeles Times. It needn’t bother — News Corp has plenty of problems of its own.
For News Corp to succeed over the long-term, not only must the planets align, but also the stars. I’ll be surprised if the company still is public in five years.
Jonathan Berr is a former Bloomberg News reporter. As of this writing, he did not hold a position in any of the aforementioned securities. Follow him on Twitter@jdberr