Shares of News Corp. fell sharply Friday after the publisher of the Wall Street Journal and other news outlets, along with HarperCollins books, reported quarterly results below Wall Street expectations and announced it would cut 1,250 jobs.
The stock lost $1.66, or 8%, to $18.93 in midday trading. The stock recorded modest gains of about 12% since the start of the year, after sliding 18% across 2022.
After the market closed Thursday, News Corp. reported quarterly revenue dropped 7% in the last three months of the year to $2.52 billion as advertising spending slumped amid rising inflation and interest rates. Advertising revenue in the fiscal second quarter fell 10.6% to $464 million.
Unfavorable currency rates were responsible for $171 million, or 6%, of the revenue drop, the company said.
Wall Street analysts, on average, were expecting revenue to come in at $2.55 billion.
Net income plunged to $94 million, or 12 cents per share, from $262 million, or 40 cents per share, in the prior-year period. Adjusted for one-time costs, profit came to 14 cents per share, well short of the 19 cents analysts projected.
The company also recorded $6 million in one-time costs related to its exploration of a recombination with Fox Corp., from which it split in 2013, at the behest of Executive Chairman Rupert Murdoch. The company scrapped that proposal last month. The company is still exploring the sale of Move, the parent company of Realtor.com.
Morningstar analyst Brian Han said the results were “a stark reminder of the economic cycle” News Corp. is facing, as they revealed hits from not only currency rates but also rising interest rates, softening consumer spending and falling advertising confidence in news media. He also noted that the year-ago results reflected a boost from consumers’ pandemic habits.
Han kept his price target on the stock at $20, suggesting he does not expect much growth in the shares over the year.
“Management has had plenty of practice in cutting costs. And if challenging conditions persist, the current USD 130 million annualised saving program may not be the last in hacking away at the USD 5.1 billion operating costs and USD 3.6 billion in selling and administrative costs,” Han wrote. “While Dow Jones has suffered its first quarterly fall since its earnings have been split out, its quality has surprised even most ardent sceptics.”
The analyst said the company’s digital real estate assets are “an enviable franchise” and News Corp. may soon monetize Move’s value via a sale.
“Further, the books unit has shown remarkable resilience, albeit currently enduring some transitional pain, and all the other units have shown an ability to adapt to changing industry dynamics,” Han continued. “The time to recognize all this is when the cycle turns down and drags the stock price with it, not the other way around.”