News Corporation (NWS)

Executive Summary / Key Takeaways

• News Corp has completed a strategic transformation that jettisoned capital-intensive Foxtel, strengthened the balance sheet by removing $724 million in debt, and concentrated the portfolio on three high-margin digital pillars that generated 89% of profits in Q1 FY26.
• The company's "woo or sue" AI strategy positions it to capture substantial value from the AI revolution, with partnerships like OpenAI already generating revenue and legal actions against Perplexity and others creating potential for significant awards, including an expected $1.5 billion from Anthropic.
• Dow Jones's professional information business is accelerating, with Risk & Compliance revenues surging 16% and segment EBITDA margins expanding to 25%, demonstrating pricing power and demand resilience that competitors cannot match.
• Digital Real Estate Services is poised for cyclical upside as U.S. mortgage rates approach 6%, with Realtor.com showing improving lead volumes and REA Group maintaining dominant market positions in Australia.
• Management is aggressively returning capital through a new $1 billion buyback program, purchasing shares at four times the previous pace while publicly stating the stock trades at a "significant discount to net asset value," aligning insider conviction with shareholder interests.

Setting the Scene: From Print Empire to Digital Data Powerhouse

News Corporation, incorporated in 2012 as the successor to the original News Corp empire, has spent the past decade executing one of the most underappreciated strategic transformations in media. Under Robert Thomson's leadership since 2013, the company has systematically shed legacy assets and rebuilt itself around three core pillars: Dow Jones's premium business information, Digital Real Estate Services anchored by REA Group and Realtor.com, and global Book Publishing through HarperCollins. Investors still view NWS through a newspaper lens, missing that 89% of profits now come from recurring, high-margin digital services with fundamentally different economics than print advertising. This is a crucial point because it highlights a significant market misperception.

The industry structure reveals why this transformation creates value. Traditional media faces existential threats from AI content scraping and digital advertising giants, but NWS has flipped this dynamic. While peers like Gannett struggle with 8.4% revenue declines and The New York Times relies heavily on consumer subscriptions, NWS has built a diversified fortress. Dow Jones sells mission-critical compliance data to enterprises, REA Group commands dominant market share in Australian property, and HarperCollins controls valuable IP that AI companies must license or risk legal action. This positioning creates multiple ways to win while competitors face single-point failure risks.

History with a Purpose: The Foxtel Sale as Strategic Inflection

The April 2025 Foxtel sale to DAZN represents the culmination of Thomson's transformation strategy, not merely an asset divestiture. By transferring $724 million of debt off the balance sheet, securing direct repayment of AUD 592 million in shareholder loans, and retaining a 6% equity stake in DAZN, NWS achieved three critical outcomes simultaneously. First, it eliminated a capital-intensive, low-growth business that consumed management attention. Second, it generated immediate liquidity to accelerate capital returns. Third, it created optionality on DAZN's growth as the "Netflix of sports." This transaction directly enabled Moody's (MCO) and S&P Global (SPGI) upgrades to investment grade, lowering future borrowing costs and validating the strategic pivot.

This history explains today's risk/reward profile. The company that once operated pay-TV satellites now invests in EV charging station data through Dow Jones's Eco-Movement acquisition and AI-powered compliance tools. The 2020 resegmentation that doubled Dow Jones's profitability and grew subscriptions 60% laid the groundwork for current margin expansion. Each strategic move—selling Foxtel, acquiring Risk & Compliance assets, building Realtor.com's content moat—has been deliberate, building a company designed for the digital age while peers remain anchored to legacy models.

Technology, Products, and Strategic Differentiation: The IP Fortress

Dow Jones's professional information business exemplifies NWS's technological moat. Risk & Compliance revenues jumped 16% in Q1 FY26 because global sanctions regimes and Know Your Client regulations create mandatory demand for NWS's proprietary data sets. Companies cannot operate internationally without this information, giving NWS pricing power that consumer news cannot command. The 10% growth in Dow Jones Energy, driven by price increases and new products, demonstrates similar stickiness. This B2B focus generates 25% EBITDA margins, far superior to consumer media, and the 84% digital revenue mix means these margins are sustainable and scalable.

The AI strategy represents pure optionality that competitors lack. While most media companies passively watch AI companies scrape their content, NWS actively enforces its IP rights through a "woo or sue" approach. The partnership with OpenAI generates immediate revenue while the lawsuit against Perplexity and expected $1.5 billion Anthropic award establish legal precedents that could force the entire AI industry to pay for content. Robert Thomson's warning that "receiving stolen property is an offense" signals relentless enforcement. This approach is significant because it transforms a threat into a revenue stream, creating a potential windfall that none of NWS's peers are positioned to capture.

Realtor.com's competitive positioning reveals another technological moat. Management built "the largest publisher of original residential real estate news in the United States," creating a content flywheel that drives engagement. The data shows Realtor.com achieved the highest visits per user in September, "clearly outstripping Zillow (ZG) and other lesser sites," with almost 5 visits per unique user. This content strategy, combined with acquisitions like Zenlist for agents, positions Realtor.com to capture market share when housing transaction volumes recover, unlike competitors focused solely on listings.

Financial Performance & Segment Dynamics: Margin Expansion in Real Time

Q1 FY26 results validate the transformation thesis despite modest headline numbers. Total revenue grew 2% to $2.14 billion, but Total Segment EBITDA rose 5% to $340 million, expanding margins by 40 basis points to 15.9%. This divergence matters because it proves NWS is growing profits faster than revenues—a hallmark of scalable digital businesses. The 89% of profits from Dow Jones and Digital Real Estate Services means the company has effectively become a B2B data services provider with media assets attached, not vice versa.

Dow Jones's performance demonstrates accelerating momentum. The 6% revenue growth to $586 million powered a 10% EBITDA increase to $144 million, with margins expanding 90 basis points to nearly 25%. Digital revenues reached 84% of the segment, up from 82%, while digital advertising hit a record 68% of ad revenue. The professional information business, growing 10% overall with Risk & Compliance up 16%, carries higher margins than consumer subscriptions, driving mix improvement. This segment alone justifies a higher multiple than traditional media peers, yet the market still values it as a newspaper business.

Digital Real Estate Services delivered 13% EBITDA growth on 5% revenue growth, expanding margins from 30.6% to 33%. REA Group's 13% residential yield growth in Australia shows pricing power despite an 8% decline in new listings, proving the platform's value to agents. Move's 9% revenue growth marked the fourth consecutive quarter of acceleration and the highest rate in nearly four years, driven by growth adjacencies (new homes, rentals, sellers) reaching 22% of revenue. Lead volumes declined just 1% versus 13% in Q4 FY25, signaling stabilization ahead of the housing market recovery.

Book Publishing's 28% EBITDA decline to $58 million appears alarming, but the $13 million receivable write-off from Baker & Taylor's closure explains a significant portion of the drop. Underlying trends are improving, with October orders rebounding and strong performance from new releases like R.F. Kuang's Katabasis. The upcoming Wicked: For Good release and Harper Lee's unpublished stories create a catalyst-rich pipeline. This segment's 23% digital mix, while down from 25%, still provides higher margins than print, and the 65% backlist contribution offers stability during market softness.

News Media's 67% EBITDA surge to $30 million on 1% revenue growth showcases ruthless cost discipline. The New York Post's 19% advertising increase, with 90% digital, demonstrates that quality tabloid content can thrive in the digital age. The upcoming California Post launch leverages this formula for geographic expansion. While advertising trends remain difficult, the segment's margin expansion from 3.3% to 5.5% proves management's ability to extract value from legacy assets while investing in digital growth.

Outlook, Management Guidance, and Execution Risk

Management's guidance reveals confidence rooted in structural tailwinds. For Dow Jones, continued strong B2B growth is expected despite slightly higher cost growth in Q2 FY26 from prior-year comparisons. The Factiva contract dispute resolution and new GenAI customer acquisitions suggest accelerating momentum. The recent price increase for Wall Street Journal digital subscriptions, with management noting "definitely elasticity," indicates untapped pricing power that could drive revenue without incremental cost.

Digital Real Estate Services faces a binary outcome that favors the upside. Management explicitly states they see the "beginnings of an expected renaissance in the U.S. real estate market" as mortgage rates approach 6%. If transaction volumes normalize, Realtor.com's improved engagement metrics and growth adjacencies position it to capture disproportionate share gains. The risk is that housing remains sluggish, but the 1% lead volume decline versus last quarter's 13% drop suggests the bottom is past.

Book Publishing guidance is cautiously optimistic, with "encouraging" October trends and Q2 FY26 benefits from timing and a stronger front list. The $120 million finance lease for a new HarperCollins warehouse will increase capital spending but deliver "additional cost savings," showing management's willingness to invest through the cycle. The key variable is whether consumer spending stabilizes, but the segment's 65% backlist provides downside protection.

The AI revenue impact remains unspecified but directionally positive. Management anticipates "these deals will have a positive impact on our results" while pursuing legal action against non-partners. This creates potential for both recurring licensing revenue and one-time legal awards, with the Anthropic case providing a $1.5 billion template. The risk is that legal processes prove slow and costly, but the "woo or sue" strategy's early success suggests asymmetric upside.

Risks and Asymmetries: What Could Break the Thesis

The most material risk is AI companies successfully scraping content without payment. If courts fail to enforce IP rights or if NWS's legal actions prove ineffective, the anticipated revenue stream could evaporate. Thomson's aggressive rhetoric—"we intend to pursue you relentlessly"—signals commitment, but legal outcomes remain uncertain. This risk directly threatens the AI monetization pillar that differentiates NWS from peers.

U.S. housing market recovery is not guaranteed. While management cites mortgage rates approaching 6% as a catalyst, structural inventory shortages and affordability constraints could limit transaction volume growth. If Realtor.com's lead volumes resume their prior 13% decline rate rather than stabilizing, Digital Real Estate Services margins could compress despite cost controls. The segment's 33% EBITDA margin leaves limited room for error.

Book Publishing's Q1 weakness could persist if consumer spending remains soft. The $13 million Baker & Taylor write-off is non-recurring, but digital sales declining 9% reflects broader industry headwinds. If the October rebound proves temporary and frontlist titles underperform, segment EBITDA could remain depressed, dragging overall margins lower despite strength elsewhere.

News Media's advertising exposure creates cyclical vulnerability. While the New York Post shows digital strength, overall segment advertising fell 4% and management acknowledges "difficult advertising trends." A macroeconomic downturn could accelerate print declines faster than digital growth can offset, particularly in Australia and the U.K. where political and economic uncertainty persists.

Competitive Context: Why NWS Is Misunderstood

Relative positioning explains the valuation disconnect. The New York Times (NYT) trades at 3.82x sales and 19.79x EV/EBITDA with faster digital subscriber growth but lacks NWS's diversification. NWS's 1.93x sales multiple effectively assigns zero value to its transformation, treating it as a declining newspaper company rather than a growing data services provider.

Thomson Reuters (TRI) commands 8.30x sales and 30.24x EV/EBITDA with superior 23.85% operating margins, but its growth is slower and it lacks consumer media exposure. NWS's Dow Jones professional business is smaller but growing faster—Risk & Compliance up 16% versus TRI's 7% organic growth—suggesting the margin gap could narrow as scale increases. NWS trades at a significant discount to TRI on EV/EBITDA, approximately 50%, despite similar digital transformation trajectories.

Gannett (GCI)'s 0.29x sales multiple reflects its existential crisis, with 8.4% revenue declines and 2.06% operating margins. NWS's positive revenue growth and 10.45% operating margins demonstrate superior execution, yet the market occasionally lumps them together due to print exposure. This misclassification creates opportunity, as NWS's digital real estate and B2B data businesses bear no resemblance to Gannett's local newspaper model.

Fox Corporation (FOXA)'s 1.77x sales and 9.03x EV/EBITDA reflect its TV-centric model, but cord-cutting risks loom large. NWS's digital-first strategy offers more durable growth, though FOXA's 26.32% operating margins show the power of sports content. The key difference is NWS's IP monetization optionality—FOXA cannot sue AI companies for scraping broadcast content as effectively as NWS can enforce text-based copyrights.

Valuation Context: The Sum-of-Parts Discount

At $29.43 per share, NWS trades at 1.93x sales, 14.94x EV/EBITDA, and 35.46x P/E, with a 0.68% dividend yield and 24.1% payout ratio. The 0.97 beta suggests market-like risk, but the business mix is far less cyclical than perceived. The 0.31 debt-to-equity ratio and $1.13 billion in annual operating cash flow provide substantial financial flexibility for buybacks and acquisitions.

The valuation puzzle becomes clear through segment analysis. REA Group alone, with its dominant Australian market position and 33% EBITDA margins, would likely command 6-8x sales as a standalone digital real estate pure-play. Dow Jones's B2B data services, growing 10% with 25% margins, should trade at least at Thomson Reuters's 8.30x sales multiple. Assigning peer-appropriate multiples to these two segments alone suggests the market values the remaining Book Publishing and News Media at negative equity, an absurdity given HarperCollins's global scale and the New York Post's digital growth.

Management's explicit statements reinforce this disconnect. Robert Thomson says "do the math, and that would be rather obvious" regarding the net asset value discount, while Lavanya Chandrashekar notes they "continue to believe the stock is trading at a significant discount." The accelerated buyback pace—$2.5 million per day versus prior rates—represents the most tangible evidence of this belief. With $1.216 billion remaining in authorization and strong free cash flow expected in fiscal 2026, management has both the conviction and capacity to continue reducing share count materially.

Conclusion: A Transformed Company at an Inflection Point

News Corp has completed a strategic metamorphosis from a capital-intensive media conglomerate into a lean, digital-first data and content company with multiple asymmetric upside drivers. The Foxtel sale strengthened the balance sheet and focused management on three high-margin pillars that are growing profits faster than revenues. The AI IP monetization strategy—simultaneously partnering with and suing AI companies—creates optionality that no peer possesses, while the housing market recovery and Book Publishing rebound offer cyclical tailwinds.

The investment thesis hinges on two critical variables: successful enforcement of IP rights against AI companies and execution of the U.S. housing recovery. If courts continue ruling that content must be licensed, NWS stands to capture billions in licensing revenue. If mortgage rates stabilize and transaction volumes recover, Realtor.com's improved engagement metrics position it for disproportionate share gains. Meanwhile, Dow Jones's B2B momentum and management's aggressive capital returns provide downside protection.

Trading at a significant discount to net asset value while generating 89% of profits from growing digital segments, NWS offers a rare combination of transformation completion, cyclical optionality, and capital return acceleration. The market's failure to re-rate the stock reflects outdated perceptions of a newspaper company rather than recognition of a data services provider with irreplaceable IP. As management continues buying back shares at an accelerated pace and AI partnerships begin contributing materially to results, this perception gap should close, rewarding patient investors who recognize that the News Corp of 2026 bears little resemblance to its historical incarnation.