The hidden value behind the Murdochs' News Corp

Jonathan Boyar, director of Boyar Value Group and advisor to the MAPFRE AM US Forgotten Value Fund

News Corporation (NASDAQ: NWSA) is a modern digital powerhouse, boasting assets such as a controlling stake (61%) in the Australian real estate juggernaut REA Group and full ownership of Dow Jones, publisher of the iconic The Wall Street Journal. Yet investors remain skeptical, and News Corp shares continue to trade at a substantial discount to our estimate of their intrinsic value. In our view, the investment community continues to focus on the company’s corporate complexity, its legacy newspaper business, and several capital allocation missteps that occurred long ago. However, with robust digital growth and management making strides in unlocking value, we believe News Corp may be on the cusp of a revaluation—which is why we have made it a substantial position in the Mapfre US Forgotten Value fund.

Transformation into a Leaner, More Focused Business

While the name remains, gone are the days when News Corp was defined by its print-heavy empire. Today, its legacy News Media segment accounts for only 7% of operating earnings and even less of our estimate of intrinsic value. In its place stands a series of growing and highly profitable digital businesses involving real estate classifieds, business news and information services, as well as book publishing.

The Digital Real Estate Services segment—which includes a majority stake in Australia’s REA Group—is the company’s crown jewel. Its real estate classifieds platform realestate.com.au attracts more than 50% of Australia’s adult population each month, and it continues to produce outstanding financial results, including a 20% increase in revenue in FY 2024.

The Dow Jones business, which includes well-known publications such as The Wall Street Journal, MarketWatch, and Barrons, is equally valuable, having successfully transitioned these publications into a digital model, as well as adding two superb information services businesses in 2022, OPIS and Base Chemicals. Digital revenues now account for 80% of Dow Jones’s sales, and margins and cash flow continue to grow.

Catalysts for Revaluation: Will Management Deliver?

Investors typically favor pure-play investments, and conglomerates often trade at a discount to the valuations their individual businesses would receive if they were separate companies. News Corp is no exception, and we estimate its intrinsic value at around $40 per share, or ~50% above today’s current share price. We have often found success investing in conglomerates when we believe management will be able to unlock this hidden value, and we see several opportunities for News Corp’s management to do so.

Over the last several years, management has already taken steps to boost transparency, improve governance and financial reporting, and return more capital to shareholders through a robust share buyback program. However, further opportunities that could have a far greater impact include the spin-off of the REA Group stake, a sale of the U.S. real estate business Move, or an IPO or sale of Foxtel, its subscription video services business in Australia. This would allow the remaining Dow Jones business to be more accurately valued compared to its peers.

Importantly, media mogul and controlling shareholder Rupert Murdoch might be a sprightly 93 years but he is not getting any younger (despite getting married for the 5th time in June!), and the eventual transfer of control to his heirs may enable more drastic measures for unlocking value. This is certainly the aim of prominent activist investor Starboard Value, who has increasingly pressured the company to realize its full potential.

A Free Call Option on Strategic Moves

Much like our analysis of Topgolf Callaway Brands featured in our previous article, investors buying News Corp today seem to be getting significantly more than they’re paying for. At current prices, News Corp shareholders receive part ownership in several market-leading digital businesses that have long runways for growth and exceptional profitability—at a substantial discount to their respective values. This alone could warrant a lucrative investment. Yet we are also attracted to the free “call option” on any strategic action—whether it’s a spin-off of REA Group, an IPO of Foxtel or a sale of U.S. real estate business Move—there are a host of initiatives that management could take to simplify the corporate structure and deliver even more value for shareholders.

An Asymmetric Bet with Potential Catalysts

We believe that News Corp presents an asymmetric opportunity: the downside appears limited based on its on its world-class portfolio of assets and discounted valuation, while significant upside potential exists if management successfully simplifies the corporate structure.

With capital return initiatives underway and activist investors in the picture, the pieces are in place for a potential re-rating. For those willing to take a long-term view (like the Mapfre US Forgotten Value Fund does), News Corp offers a compelling value proposition.