News Corporation Reports Second Quarter Results for Fiscal 2021

FISCAL 2021 SECOND QUARTER KEY FINANCIAL HIGHLIGHTS

• Revenues were $2.41 billion, a 3% decline compared to $2.48 billion in the prior year – Adjusted Revenues increased 2% compared to the prior year
• Net income of $261 million compared to $103 million in the prior year
• Total Segment EBITDA was $497 million compared to $355 million in the prior year
• Reported diluted EPS were $0.39 compared to $0.14 in the prior year – Adjusted EPS were $0.34 compared to $0.18 in the prior year
• Book Publishing Segment EBITDA increased 65% compared to the prior year, driven by strong revenue growth across every category
• Move, operator of realtor.com^®, reported 28% revenue growth and was a key driver of Segment EBITDA growth at the Digital Real Estate Services segment
• Dow Jones reported 43% Segment EBITDA growth, driven by record digital advertising revenues and continued growth in digital subscriptions
• Subscription Video Services Segment EBITDA grew 77% as Foxtel benefited from lower costs while reaching a record of more than 1.3 million paying OTT subscribers as of the quarter end

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 December 31, 2020. Commenting on the results, Chief Executive Robert Thomson said:

“The second quarter of fiscal 2021 was the most profitable quarter since the new News Corp was launched more than seven years ago, reflecting the ongoing digital transformation of the business. We reported the largest profits for Dow Jones since the acquisition of the company in 2007, with Segment EBITDA increasing 43 percent and traffic across the Dow Jones digital network surging 48 percent.

There was also a 77 percent rise in Segment EBITDA at the Subscription Video Services segment, where the exponential evolution at Foxtel continued apace, with streaming customers increasing over 90 percent, rights costs reset and audiences for summer sports at unprecedented levels.

Rapid expansion continued at Move, which accounted for about 80 percent of Segment EBITDA growth in the Digital Real Estate Services segment, while revenue grew 28 percent compared to a year earlier. Realtor.com^®’s traffic growth has now outpaced that of Zillow for the last 11 months in a row, according to Comscore, and monthly average unique users were 37 percent higher during the quarter compared to the prior year.

In the Book Publishing segment, HarperCollins’ revenues rose 23 percent, with double digit growth across every category, and a 65 percent burgeoning of Segment EBITDA. And history was also made at the New York Post, which reported its first profit in modern times – a notable feat for what had been a chronic loss-making masthead founded in 1801 by Alexander Hamilton.”

SECOND QUARTER RESULTS

The Company reported fiscal 2021 second quarter total revenues of $2.41 billion, 3% lower compared to $2.48 billion in the prior year period. The decline was mainly due to lower revenues at the News Media segment, primarily driven by a $191 million, or 8%, negative impact from the divestiture of News America Marketing, weakness in the print advertising market, and a $34 million, or 1%, negative impact from the closure or transition to digital of certain regional and community newspapers in Australia. The decline was partially offset by growth in the Book Publishing, Digital Real Estate Services and Dow Jones segments, as well as a $75 million, or 3%, positive impact from foreign currency fluctuations. Adjusted Revenues (which exclude the foreign currency impact, acquisitions and divestitures as defined in Note 2) increased 2%.

Net income for the quarter was $261 million compared to $103 million in the prior year, reflecting higher Total Segment EBITDA, as discussed below, and higher Other, net, partially offset by higher tax expense.

The Company reported second quarter Total Segment EBITDA of $497 million, a 40% increase compared to $355 million in the prior year. The increase was primarily due to the strong performance at key segments, driven by a combination of improved operating trends and cost reductions, as well as an $18 million, or 6%, positive impact from foreign currency fluctuations. Adjusted Total Segment EBITDA (as defined in Note 2) increased 39%.

Diluted net income per share attributable to News Corporation stockholders was $0.39 as compared to $0.14 in the prior year.

Adjusted EPS (as defined in Note 3) were $0.34 compared to $0.18 in the prior year.

Digital Real Estate Services

Revenues in the quarter increased $45 million, or 15%, compared to the prior year, including a $12 million, or 4%, positive impact from foreign currency fluctuations. Segment EBITDA in the quarter increased $24 million, or 20%, compared to the prior year, primarily due to $19 million of higher contribution from Move and a positive impact of $7 million, or 6%, from foreign currency fluctuations. Adjusted Revenues and Adjusted Segment EBITDA (as defined in Note 2) increased 11% and 19%, respectively.

Move’s revenues in the quarter increased $34 million, or 28%, to $155 million, primarily as a result of higher real estate revenues. Real estate revenues, which represented 83% of total Move revenues, grew $30 million, or 30%, due to the continued strength in the referral model and the recovery in the traditional lead generation product, both benefiting from an over 30% increase in average monthly lead volume and higher transaction volume. The referral model also benefited from higher average home values and generated approximately 30% of total Move revenues. The traditional lead generation product saw continued strong demand from agents, driving 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 second quarter grew 37% year-over-year to 80 million.

In the quarter, revenues at REA Group increased $11 million, or 6%, to $184 million, primarily driven by a $12 million, or 7%, positive impact from foreign currency fluctuations. The modest revenue declines in the commercial and Asia businesses were offset by growth in Australian residential depth revenues. Australian national residential listing volumes in the quarter increased 10% compared to the prior year as more markets recovered with the relaxation of government restrictions, with listings in Melbourne and Sydney up 25% and 13%, respectively.

Subscription Video Services

Revenues in the quarter increased $10 million, or 2%, compared with the prior year, reflecting a $33 million, or 7%, positive impact from foreign currency fluctuations and higher revenues from OTT products. The revenue increase was partially offset by the impact from fewer residential broadcast subscribers and an $11 million, or 2%, negative impact from lower commercial subscription revenues resulting from the ongoing restrictions on pubs, clubs and other commercial venues due to COVID-19. Adjusted Revenues decreased 5% compared to the prior year.

As of December 31, 2020, Foxtel’s total closing paid subscribers were 3.314 million, a 12% increase compared to the prior year, primarily due to the launch of Binge and the growth in Kayo subscribers, partially offset by lower residential and commercial broadcast subscribers. 2.001 million of the total closing subscribers were residential and commercial broadcast subscribers, and the remaining 1.313 million consisted of Kayo, Binge and Foxtel Now subscribers. As of December 31, 2020, there were 648,000 Kayo subscribers (624,000 paying), compared to 372,000 subscribers (350,000 paying) in the prior year. Binge, which launched in May 2020, had 468,000 subscribers (431,000 paying) as of December 31, 2020. As of December 31, 2020, there were 265,000 Foxtel Now subscribers (258,000 paying), compared to 343,000 subscribers (334,000 paying) in the prior year.

Broadcast subscriber churn in the quarter increased to 17.5% from 16.0% in the prior year, due to fewer promotions and the roll-off of lower value subscribers. Broadcast ARPU for the quarter increased 3% to A$80 (US$58).

Segment EBITDA in the quarter increased $54 million, or 77%, compared with the prior year. The improvement reflects $35 million of lower sports programming rights and production costs, which was primarily driven by the savings from renegotiated sports rights, partially offset by the $20 million negative impact related to the deferral of costs from the fourth quarter of fiscal 2020. The Segment EBITDA improvement was also due to lower entertainment programming costs, lower overhead expenses resulting from cost reduction efforts and an $8 million positive impact from foreign currency fluctuations. Adjusted Segment EBITDA increased 66%.

Dow Jones

Revenues in the quarter increased $16 million, or 4%, compared to the prior year, primarily due to growth in circulation and subscription and digital advertising revenues, partially offset by lower print advertising revenues. Digital revenues at Dow Jones in the quarter represented 70% of total revenues compared to 64% in the prior year.

Circulation and subscription revenues increased $23 million, or 8%, including a $3 million, or 1%, positive impact from foreign currency fluctuations. Circulation revenue grew 8%, 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 4%, driven by 21% growth in Risk & Compliance products, partially offset by the decline in revenues from other professional information business products. Digital circulation revenues accounted for 63% of circulation revenues for the quarter, compared to 57% in the prior year.

During the second quarter, Dow Jones saw the highest year-over-year growth in total subscriptions and digital-only subscriptions for both The Wall Street Journal and total Dow Jones’ consumer products in its history. Total subscriptions to Dow Jones’ consumer products reached a record 4.03 million average subscriptions for the quarter, an 18% increase compared to the prior year, of which digital-only subscriptions grew 29%. Total subscriptions to The Wall Street Journal grew 19% compared to the prior year, to a record 3.22 million average subscriptions in the quarter. Digital-only subscriptions to The Wall Street Journal grew 28% to more than 2.46 million average subscriptions in the quarter, and represented 76% of total Wall Street Journal subscriptions.

Advertising revenues decreased $5 million, or 4%, primarily due to a 29% decline in print advertising revenues, driven by general market weakness and lower print volume across The Wall Street Journal and Barron’s due to COVID-19. The decline was partially offset by record quarterly digital advertising revenues, driven by custom revenue and a rebound in direct display sales. Digital advertising revenues grew 29% compared to the prior year, which was the highest growth rate in 10 years. Digital advertising accounted for 58% of total advertising revenues in the quarter, compared to 43% in the prior year.

Segment EBITDA for the quarter increased $33 million, or 43%, primarily due to higher revenues, as discussed above, and lower costs related to lower print volume and other discretionary cost savings, partially offset by higher compensation costs.

Book Publishing

Revenues in the quarter increased $102 million, or 23%, compared to the prior year, including a $5 million, or 1%, positive impact from foreign currency fluctuations. The revenue growth was primarily due to higher sales in every category with the success of titles such as Didn’t See That Coming by Rachel Hollis, The Happy in a Hurry Cookbook by Steve Doocy, The Greatest Secret by Rhonda Byrne and Code Name Bananas by David Walliams. Adjusted Revenues increased 19%. Digital sales increased 15% compared to the prior year, driven by growth in both e-book and downloadable audiobook sales. Digital sales represented 18% of Consumer revenues for the quarter. Segment EBITDA for the quarter increased $41 million, or 65%, compared to the prior year, primarily due to the higher revenues discussed above and the mix of titles. Adjusted Segment EBITDA increased 60%.

News Media

Revenues in the quarter decreased $238 million, or 29%, as compared to the prior year, including a $22 million, or 3%, positive impact from foreign currency fluctuations. The decline was primarily driven by a $191 million, or 24%, impact from the divestiture of News America Marketing in May 2020. The decline also reflects weakness in the print advertising market and the $34 million, or 4%, 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 11% and 5%, respectively. Adjusted Revenues for the segment decreased 9% compared to the prior year.

Circulation and subscription revenues increased $12 million, or 5%, compared to the prior year, primarily due to digital subscriber growth, a $9 million, or 4%, positive impact from foreign currency fluctuations and price increases, partially offset by lower single-copy sales revenue, primarily at News UK and the New York Post.

Advertising revenues decreased $231 million, or 48%, compared to the prior year, reflecting a $191 million, or 40%, negative impact from the divestiture of News America Marketing. The remainder of the decline was driven by continued weakness in the print advertising market, exacerbated by COVID-19, and a $28 million, or 6%, negative impact related to the closure or transition to digital of certain regional and community newspapers in Australia, partially offset by a $10 million, or 2%, positive impact from foreign currency fluctuations and growth in digital advertising at the New York Post and News UK.

In the quarter, Segment EBITDA was flat compared to the prior year, as higher cost savings at News UK and News Corp Australia, as well as a positive contribution from the New York Post, were offset by lower revenues, as discussed above, and the absence of a $22 million one-time benefit in the prior year from the settlement of certain warranty related claims in the U.K. Adjusted Segment EBITDA increased 5%.

Digital revenues represented 31% of News Media segment revenues in the quarter, compared to 22% in the prior year, and represented 29% of the combined revenues of the newspaper mastheads. 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 December 31, 2020 were 738,300, compared to 566,600 in the prior year (Source: Internal data)
• The Times and Sunday Times closing digital subscribers as of December 31, 2020 were 335,000, compared to 320,000 in the prior year (Source: Internal data)
• The Sun’s digital offering reached 130 million global monthly unique users in December 2020, compared to 140 million in the prior year (Source: Google Analytics)
• New York Post’s digital network reached 141 million unique users in December 2020, compared to 95 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 $483 million for the six months ended December 31, 2020 was $291 million higher than $192 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 six months ended December 31, 2020 was $277 million compared to $(96) 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 six months ended December 31, 2020 were $79 million, compared to $129 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

COVID-19 Impact and Outlook

The ongoing impact of the COVID-19 pandemic and measures to prevent its spread continue to create significant economic volatility, uncertainty and disruption, affecting the Company’s businesses in a number of ways. The discussion below summarizes the effects on the Company’s businesses during the six months ended December 31, 2020 and through the date of this filing, as well as expected trends for the second half of fiscal 2021:

Digital Real Estate Services: The real estate markets in Australia, Asia and the U.S. have been, and may continue to be, impacted as a result of social distancing measures, business closures and economic uncertainty resulting from COVID-19. In January, national residential listings in Australia were flat compared to the prior year with a 12% increase in Melbourne and a 1% decline in Sydney. Consumer confidence is improving as COVID-19 cases remain extremely low in Australia. Based on the current market outlook and excluding the impact of acquisitions, REA Group expects core operating costs for fiscal 2021 to be broadly in-line with the prior year. Second half results will be impacted by the consolidation of Elara. In the U.S., Move is benefiting from strong consumer demand, with unique users and leads at all-time highs, despite active listings across the industry remaining at historically low levels. Unique users at realtor.com^® in January grew 37% year-over-year to a record 94 million. Higher expected revenues driven by growth in traffic and lead volumes will fund reinvestment in the second half of fiscal 2021. The Company expects to invest an additional $40 million in brand marketing and product development compared to the prior year to drive further market share and expand into adjacent verticals.

Subscription Video Services: Foxtel’s revenue trends have been better than anticipated in the first half of fiscal 2021, with higher ARPU offsetting higher churn, resulting in lower year-over-year revenue declines in residential broadcast. Broadcast churn is expected to remain elevated due to the suspension of government stimulus payments and Foxtel’s ongoing emphasis on ARPU. In addition, higher average OTT subscribers through January should result in higher than expected OTT revenue for the full year. The ongoing disruption in operations at pubs and clubs from government imposed occupancy restrictions and lower occupancy at hotels throughout Australia due to the domestic travel restrictions are expected to continue to adversely impact commercial subscription revenue. Given Foxtel’s continued investment in its OTT products as well as higher costs from the higher revenue, the Company now expects the full year overall net cost reductions to be less than $73 million (A$100 million), compared to the previous estimate of net A$160 million ($117 million), inclusive of approximately $58 million (A$80 million) of higher sports costs in the second half of fiscal 2021, particularly in the fourth quarter, compared to the prior year. U.S. dollar amounts are converted by using the fiscal 2021 second quarter average exchange rate (See Note 2).

Dow Jones and News Media: COVID-19 continues to exacerbate print advertising weakness and negatively impact weekday print volumes due to increased economic uncertainty and lower demand for single copy and amenity newspapers driven by decreased foot traffic resulting from remote working, social distancing measures and other government restrictions. The latest national lockdown in the U.K., the continuation of remote working in the U.S. and, to a lesser extent, the current domestic travel restrictions in Australia are expected to continue to negatively impact these revenue streams in the second half of the fiscal year. However, the Company has seen increases in digital paid subscriptions and digital audience gains at online versions of many of its news properties.

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