News Corporation Reports First Quarter Results for Fiscal 2021

FISCAL 2021 FIRST QUARTER KEY FINANCIAL HIGHLIGHTS

• Revenues were $2.12 billion, a 10% decline compared to $2.34 billion in the prior year, primarily driven by the sale of News America Marketing
• Net income of $47 million compared to a net loss of $(211) million in the prior year, which included non-cash impairment charges of $273 million
• Total Segment EBITDA was $268 million compared to $221 million in the prior year
• Reported EPS were $0.06 compared to $(0.39) in the prior year – Adjusted EPS were $0.08 compared to $0.04 in the prior year
• Segment EBITDA at Digital Real Estate Services grew 45%, with record revenue and profit contribution by Move, operator of realtor.com^®, led by its referral model
• Segment EBITDA at Dow Jones grew 47%, driven by record average consumer product subscriptions of 3.88 million, led by 29% growth in digital-only subscriptions
• Book Publishing saw 13% and 45% growth in revenues and Segment EBITDA, respectively, benefiting from continued strong performance in digital sales

NEW YORK--(BUSINESS WIRE)--News Corporation (“News Corp” or the “Company”) (Nasdaq: NWS, NWSA; ASX: NWS, NWSLV) today reported financial results for the three months ended September 30, 2020.

Commenting on the results, Chief Executive Robert Thomson said:

“News Corp has started the fiscal year strongly, with higher revenue in many of our segments during the first quarter, and a 21 percent increase year-on-year in profitability, despite the disruptive economic consequences of COVID-19.

Total revenues for the quarter were $2.1 billion, a fall of 10 percent, but that contraction was largely due to the sale of News America Marketing, and the adjusted decline was 3 percent. Meanwhile, three of our segments, Dow Jones, Digital Real Estate Services and Book Publishing, reported year-over-year Segment EBITDA increases of at least 45 percent, highlighting the success of our investment strategy in publishing and digital real estate.

Dow Jones posted a record first quarter in profitability and higher revenues, thanks to its role as one of the world’s most trusted providers of business news and analysis. There is undoubted U.S. and international potential for Dow Jones to expand audiences and revenues, and the team is pleased by the early returns on a subscriber offering for the previously free MarketWatch service.

Digital Real Estate Services flourished, even though property markets have naturally been unsettled by the pandemic and the understandable restrictions on home inspections. Move, the operator of realtor.com^®, reported record revenues and profit contribution for the quarter, and played an important role in our overall profitability. HarperCollins’ strong results reflected the importance of savvy commissioning, combined with sensible cost control.

It is clear that the digital landscape is changing fundamentally, and the Company has been an important catalyst for that change. The principle of a premium for premium content is now recognized, and there will inevitably be further developments in algorithmic transparency and the digital advertising market, two areas in which News Corp has been a leading advocate.

We are continuing our drive to be a more focused, more digital company and we believe the positive results of that strategy are already clear. Our aim is to generate enhanced returns for our investors in the months, quarters and years to come.”

FIRST QUARTER RESULTS

The Company reported fiscal 2021 first quarter total revenues of $2.12 billion, 10% lower compared to $2.34 billion in the prior year period. The decline was due to a $200 million, or 9%, negative impact from the divestiture of News America Marketing, weakness in the print advertising market, a $35 million, or 2%, negative impact from the closure or transition to digital of certain regional and community newspapers in Australia and lower subscription revenues at the Subscription Video Services segment. The decline was partially offset by growth in the Book Publishing and Digital Real Estate Services segments, as well as a $50 million, or 2%, positive impact from foreign currency fluctuations. Adjusted Revenues (which exclude the foreign currency impact, acquisitions and divestitures as defined in Note 2) decreased 3%.

Net income for the quarter was $47 million compared to a net loss of $(211) million in the prior year, reflecting the absence of impairment charges and higher Total Segment EBITDA, as discussed below, partially offset by higher tax expense.

The Company reported first quarter Total Segment EBITDA of $268 million, a 21% increase compared to $221 million in the prior year. The increase was primarily due to strong growth at the Digital Real Estate Services, Dow Jones and Book Publishing segments, partially offset by a decline at the News Media segment, reflecting the absence of a net $12 million contribution due to the divestitures of News America Marketing and Unruly. Adjusted Total Segment EBITDA (as defined in Note 2) increased 23%.

Net income (loss) per share attributable to News Corporation stockholders was $0.06 as compared to $(0.39) in the prior year.

Adjusted EPS (as defined in Note 3) were $0.08 compared to $0.04 in the prior year.

SEGMENT REVIEW

Digital Real Estate Services

Revenues in the quarter increased $18 million, or 7%, compared to the prior year, including a $6 million, or 3%, positive impact from foreign currency fluctuations. Segment EBITDA in the quarter increased $37 million, or 45%, compared to the prior year, primarily due to $28 million of higher contribution from Move, the deferral of marketing costs and a positive impact of $3 million, or 4%, from foreign currency fluctuations. Adjusted Revenues and Adjusted Segment EBITDA (as defined in Note 2) increased 4% and 40%, respectively.

Move’s revenues in the quarter increased $15 million, or 12%, to $138 million, primarily as a result of higher real estate revenues. Real estate revenues, which represented 81% of total Move revenues, grew $13 million, or 13%, due to strength in the referral model, driven by an over 40% increase in average monthly lead volume and higher average home values. Revenues from the referral model in the quarter represented approximately 30% of total Move revenues. Revenues from the traditional lead generation product declined modestly, which was an improvement from the prior quarter trend, as strong demand from agents increased sell-through and yield. Based on Move’s internal data, average monthly unique users of realtor.com^®’s web and mobile sites for the fiscal first quarter grew 26% year-over-year to 90 million, with a record 92 million unique users in August.

In the quarter, revenues at REA Group increased $3 million, or 2%, to $152 million, primarily driven by a $6 million, or 4%, positive impact from foreign currency fluctuations. The modest revenue declines in the developer, commercial and Asian businesses were offset by modest growth in residential revenues and an increase in financial services revenues. Australian national residential listing volumes in the quarter declined 2% compared to the prior year, driven by the continued impact from COVID-19 restrictions, particularly in Victoria.

Subscription Video Services

Revenues in the quarter decreased $18 million, or 4%, compared with the prior year, including a $20 million, or 3%, positive impact from foreign currency fluctuations. The revenue decline was driven by the impact from fewer residential broadcast subscribers and a $14 million, or 3%, negative impact from lower commercial subscription revenues resulting from the ongoing restrictions on pubs, clubs and other commercial venues due to COVID-19, partially offset by higher revenues from OTT products. Adjusted Revenues decreased 7% compared to the prior year.

As of September 30, 2020, Foxtel’s total closing paid subscribers were 3.287 million, a 7% increase compared to the prior year, primarily due to the growth in subscribers at Kayo and the launch of Binge, partially offset by lower residential and commercial broadcast subscribers. 2.055 million of the total closing subscribers were residential and commercial broadcast subscribers, and the remaining 1.232 million consisted of Kayo, Foxtel Now and Binge subscribers. As of September 30, 2020, there were 681,000 Kayo subscribers (644,000 paying), compared to 430,000 subscribers (364,000 paying) in the prior year. As of September 30, 2020, there were 310,000 Foxtel Now subscribers (298,000 paying), compared to 385,000 subscribers (375,000 paying) in the prior year. Binge, which launched in May, had 321,000 (290,000 paying) subscribers as of September 30, 2020.

Broadcast subscriber churn in the quarter increased slightly to 14.6% from 14.4% in the prior year. Broadcast ARPU for the quarter increased 1% to A$79 (US$56).

Segment EBITDA in the quarter decreased $3 million, or 4%, compared with the prior year, primarily due to lower revenues as discussed above, partially offset by lower entertainment programming costs and lower other operating costs. The $36 million (A$51 million) negative impact related to the deferral of sports programming rights and production costs from the fourth quarter of fiscal 2020 into fiscal 2021 as a result of the suspension of sporting events due to COVID-19 was partially offset by the savings from renegotiated sports rights. Adjusted Segment EBITDA decreased 9%.

Dow Jones

Revenues in the quarter increased $4 million, or 1%, compared to the prior year, primarily due to growth in circulation and subscription revenues, partially offset by lower print advertising revenues. Digital revenues at Dow Jones in the quarter represented 73% of total revenues compared to 65% in the prior year.

Circulation and subscription revenues increased $22 million, or 8%, primarily due to an increase in circulation revenues and higher revenues from content licensing partnerships. Circulation revenue grew 7%, reflecting the continued strong growth in digital-only subscriptions, partially offset by lower single-copy and amenity sales related to COVID-19. Professional information business revenues grew 2%, driven by 16% growth in Risk & Compliance products, partially offset by the decline in revenues from News Alerts & Data products. Digital circulation revenues accounted for 63% of circulation revenues for the quarter, compared to 56% in the prior year. During the quarter, total subscriptions to Dow Jones’ consumer products reached 3.88 million, an 18% increase compared to the prior year, of which digital-only subscriptions grew 29%. Subscriptions to The Wall Street Journal grew 19% compared to the prior year, to 3.10 million average subscriptions in the quarter. Digital-only subscriptions to The Wall Street Journal grew 27% to more than 2.35 million average subscriptions in the quarter, and represented 76% of its total subscriptions.

Advertising revenue decreased $14 million, or 17%, primarily due to a 39% decline in print advertising revenues, driven by general market weakness and lower volume across The Wall Street Journal and Barron’s due to COVID-19, partially offset by a 14% increase in digital advertising revenues. Digital advertising accounted for 57% of total advertising revenues in the quarter, compared to 42% in the prior year.

Segment EBITDA for the quarter increased $23 million, or 47%, primarily due to lower costs related to lower print volume and other discretionary cost savings as a result of COVID-19, as well as higher revenues, as discussed above.

Book Publishing

Revenues in the quarter increased $53 million, or 13%, compared to the prior year, reflecting a $4 million, or 1%, positive impact from foreign currency fluctuations. The revenue growth was primarily due to higher sales in General books with the success of titles such as The Order by Daniel Silva, The Guest List by Lucy Foley and How to Destroy America in Three Easy Steps by Ben Shapiro, as well as growth in Children’s books, driven by higher backlist sales across various titles. Adjusted Revenues increased 10%. Digital sales increased 20% compared to the prior year, driven by growth in both e-book and downloadable audiobook sales. Digital sales represented 23% of Consumer revenues for the quarter. Segment EBITDA for the quarter increased $22 million, or 45%, compared to the prior year, primarily due to the higher revenues discussed above. Adjusted Segment EBITDA increased 41%.

News Media

Revenues in the quarter decreased $280 million, or 37%, as compared to the prior year, including a $19 million, or 2%, positive impact from foreign currency fluctuations. The decline was primarily driven by a $200 million, or 26%, impact from the divestiture of News America Marketing in May 2020. The decline also reflects the $35 million, or 5%, impact from the closure or transition to digital of certain regional and community newspapers in Australia. Within the segment, revenues at News Corp Australia and News UK declined 20% and 8%, respectively. Adjusted Revenues for the segment decreased 16% compared to the prior year.

Circulation and subscription revenues increased $1 million compared to the prior year, primarily due to digital subscriber growth, a $10 million, or 4%, positive impact from foreign currency fluctuations and price increases, offset by lower single-copy sales revenue, primarily at News UK, as a result of COVID-19.

Advertising revenues decreased $262 million, or 59%, compared to the prior year, reflecting a $200 million, or 45%, negative impact from the divestiture of News America Marketing. The remainder of the decline was driven by continued weakness in the advertising market, exacerbated by COVID-19, and a $29 million, or 7%, negative impact related to the closure or transition to digital of certain regional and community newspapers in Australia, partially offset by a $7 million, or 1%, positive impact from foreign currency fluctuations.

In the quarter, Segment EBITDA decreased $29 million compared to the prior year, reflecting lower revenues, as discussed above, and the absence of a net $12 million contribution due to the divestitures of News America Marketing and Unruly, partially offset by higher cost savings across the businesses.

Digital revenues represented 28% of News Media segment revenues in the quarter, compared to 19% in the prior year. For the quarter, digital revenues at the newspaper mastheads represented 25% of their combined revenues. Digital subscribers and users across key properties within the News Media segment are summarized below:

• Closing digital subscribers at News Corp Australia’s mastheads as of September 30, 2020 were 685,200, compared to 542,400 in the prior year (Source: Internal data)
• The Times and Sunday Times closing digital subscribers as of September 30, 2020 were 337,000, compared to 312,000 in the prior year (Source: Internal data)
• The Sun’s digital offering reached 140 million global monthly unique users in September 2020, compared to 129 million in the prior year (Source: Google Analytics)
• New York Post’s digital network reached 144 million unique users in September 2020, compared to 107 million in the prior year (Source: Google Analytics)

CASH FLOW

The following table presents a reconciliation of net cash provided by operating activities to free cash flow available to News Corporation:

Net cash provided by operating activities of $155 million for the three months ended September 30, 2020 was $128 million higher than $27 million in the prior year, primarily due to higher Total Segment EBITDA as noted above and lower working capital.

Free cash flow available to News Corporation in the three months ended September 30, 2020 was $65 million compared to $(83) million in the prior year period. The improvement was primarily due to higher cash provided by operating activities, as mentioned above, and lower capital expenditures. Foxtel’s capital expenditures for the three months ended September 30, 2020 were $51 million, compared to $66 million in the prior year.

Free cash flow available to News Corporation is a non-GAAP financial measure defined as net cash provided by operating activities, less capital expenditures (“free cash flow”), less REA Group free cash flow, plus cash dividends received from REA Group.

The Company considers free cash flow available to News Corporation to provide useful information to management and investors about the amount of cash that is available to be used to strengthen the Company’s balance sheet and for strategic opportunities including, among others, investing in the Company’s business, strategic acquisitions, dividend payouts and repurchasing stock. The Company believes excluding REA Group’s free cash flow and including dividends received from REA Group provides users of its consolidated financial statements with a measure of the amount of cash flow that is readily available to the Company, as REA Group is a separately listed public company in Australia and must declare a dividend in order for the Company to have access to its share of REA Group’s cash balance. The Company believes free cash flow available to News Corporation provides a more conservative view of the Company’s free cash flow because this presentation includes only that amount of cash the Company actually receives from REA Group, which has generally been lower than the Company’s unadjusted free cash flow. A limitation of free cash flow available to News Corporation is that it does not represent the total increase or decrease in the cash balance for the period. Management compensates for the limitation of free cash flow available to News Corporation by also relying on the net change in cash and cash equivalents as presented in the Company’s consolidated statements of cash flows prepared in accordance with GAAP which incorporates all cash movements during the period.

OTHER ITEMS

Subsequent Events

In October 2020, REA Group entered into a binding agreement to increase its ownership interest in Elara Technologies Pte. Ltd. (“Elara”). REA Group currently holds a 13.5% interest and on completion, is expected to have a shareholding of between 47.2% and 61.1% and hold five of nine seats on Elara’s Board of Directors. The total consideration for the transaction at the REA Group level is expected to be between $50 million to $70 million, with $34.5 million to be paid in cash and the remainder in newly-issued REA Group shares. In connection with the transaction, News Corp will also increase its interest in Elara to 38.9% for a cash payment of $34.5 million. On a consolidated basis, News Corp is expected to hold an 86.1% to 100% combined interest in Elara upon completion. The transaction, which remains subject to confirmatory due diligence and the renegotiation of key management employment contracts, is anticipated to be completed in the second quarter of fiscal 2021.

COMPARISON OF NON-GAAP TO U.S. GAAP INFORMATION

Adjusted Revenues, Total Segment EBITDA, Adjusted Total Segment EBITDA, Adjusted Segment EBITDA, adjusted net income attributable to News Corporation stockholders, Adjusted EPS and free cash flow available to News Corporation are non-GAAP financial measures contained in this earnings release. The Company believes these measures are important tools for investors and analysts to use in assessing the Company’s underlying business performance and to provide for more meaningful comparisons of the Company’s operating performance between periods. These measures also allow investors and analysts to view the Company’s business from the same perspective as Company management. These non-GAAP measures may be different than similar measures used by other companies and should be considered in addition to, not as a substitute for, measures of financial performance calculated in accordance with GAAP. Reconciliations for the differences between non-GAAP measures used in this earnings release and comparable financial measures calculated in accordance with U.S. GAAP are included in Notes 1, 2 and 3 and the reconciliation of net cash provided by operating activities to free cash flow available to News Corporation is included above.

Conference call

News Corporation’s earnings conference call can be heard live at 5:00pm EST on November 5, 2020. To listen to the call, please visit http://investors.newscorp.com.

Annual Meeting of Stockholders

News Corporation’s 2020 Annual Meeting of Stockholders will be held exclusively via live webcast on Wednesday, November 18, 2020, beginning at 3:00 p.m. (Eastern Standard Time). The webcast can be accessed at www.virtualshareholdermeeting.com/NWS2020. A replay will be available at the same location for a period of time following the meeting.

Cautionary Statement Concerning Forward-Looking Statements

This document contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements regarding trends and uncertainties affecting the Company’s business, results of operations and financial condition, including expected impacts from the ongoing COVID-19 pandemic and related public health measures, the Company’s strategy and strategic initiatives, including potential acquisitions, investments and dispositions, and the outcome of contingencies such as litigation and investigations. These statements are based on management’s views and assumptions regarding future events and business performance as of the time the statements are made. Actual results may differ materially from these expectations due to the risks and uncertainties related to COVID-19 and the risks, uncertainties and other factors described in the Company’s filings with the Securities and Exchange Commission (many of which may be amplified by COVID-19). The ultimate impact of the COVID-19 pandemic, including the extent of adverse impacts on the Company’s business, results of operations, cash flows and financial condition, will depend on, among other things, the severity, duration, spread and any reoccurrence of the pandemic, the impact of governmental actions and business and consumer behavior in response to the pandemic, the effectiveness of actions taken to contain or mitigate the outbreak and prevent or limit any reoccurrence, the resulting global economic conditions and how quickly and to what extent normal economic and operating conditions can resume, all of which are highly uncertain and cannot be predicted.

Investor Relations Michael Florin 212-416-3363 mflorin@newscorp.com

Leslie Kim 212-416-4529 lkim@newscorp.com

Corporate Communications Jim Kennedy 212-416-4064 jkennedy@newscorp.com