Credit: Aditya Vyas via Unsplash
News Corp, with the sale of Foxtel behind it, and the proceeds safely tucked away, has in its engine room a sometimes unappreciated asset, Dow Jones.
The media group paid $US.6 billion for the financial publisher in 2007. Then the glittering prize within the business was the Wall Street Journal, THE US financial newspaper, which was even then building an impressive subscription business.
Now the glowing star is the professional information services within Dow Jones. Analysts at Morgan Stanley rate it as a “very good business”.
Robert Thomson, the CEO of News and a former editor in chief of the Wall Street Journal, gave a view inside Dow Jones when briefing market analysts on News’ March quarter results.
“Dow Jones was a highlight,” Thomson, who has relentlessly been telling the market that Dow Jones is undervalued, said.
News Corp reported a 1% increase in revenue to $US2.01 billion in the March quarter, driven by growth in Dow Jones, digital real estate services and book publishing.
“We foresaw an improvement in the quarter and that expectation was definitely realized," said Thomson. "Dow Jones posted a healthy 6% revenue growth, while profitability surged 12% and the margin rose from 21.7% to 23%.
“We saw digital circulation revenue expand 14%, the fastest growth rate in almost three years and recorded improvement in digital ARPU (average revenue per use) year-over-year and quarter-over-quarter while total consumer subscriptions surpassed the six million milestone.
“Since our re-segmentation in 2020 not only has Dow Jones profitability more than doubled but total subscriptions have risen over 60% with more than 90% now fully digital. The rather active news cycle has unsurprisingly contributed to further increases in audience traffic and subscriptions in recent days.
“The professional information business at Dow Jones continued to thrive posting an improved 6% revenue growth driven by double-digit expansion at both Risk & Compliance and Dow Jones Energy. Risk & Compliance posted 11% revenue growth despite unfavorable currency volatility as risks rose in the global economy and the need for compliance remained an imperative for thoughtful companies in a fast-changing regulatory environment.
“Significantly we completed the acquisition of Oxford Analytica and DragonFly Intelligence in the fourth quarter which should enhance our ability to provide insight and intel to companies across the globe.
“Meanwhile Dow Jones Energy posted 10% revenue growth as we invested in product offerings and built on unique pricing products and real-time analysis. One example was carbon and clean fuels analytics which helps businesses, investors and traders capitalise on opportunities from energy transition at a time of pronounced regulatory upheaval.
“The Dow Jones team expects that Factiva, which has been an unfortunate drag on professional information revenues, should improve in coming quarters as we cycle past the unfavourable impact of a contentious client dispute.”
Last month, before the latest results showing Dow Jones’ rise within the media group, Morgan Stanley did a deep dive into the financial news and professional information business.
The research was headlined: “ … why we think its profitability + growth options are underappreciated ... and undervalued.”
“We think it's time for investors to take a closer look at Dow Jones,” said the analysts in a note to clients.
“Dow Jones is a very good digital business, which we think the market is undervaluing.”
Generally the market benchmarks Dow Jones against the New York Times but the Morgan Stanley analysts believe this doesn't factor in higher growth prospects of its professional information services versus the consumer side.
“We believe the DJ Enterprise businesses and Dow Jones division overall are undervalued: We forecast revenue growth for the Enterprise side of the Dow Jones division that is meaningfully faster than that of the traditional consumer business over the next 3-5 years.”
Morgan Stanley values Dow Jones as a stand alone business at US$12 billion versus the general Wall Street view of $US10 billion.
The revenue and earnings mix of Dow Jones has evolved, becoming less reliant on advertising revenue to drive growth.
Advertising-linked revenue within Dow Jones fell to 18% of the whole in the 2024 financial year from 27% in 2018.
Over the same time, Morgan Stanley estimates that professional information business revenue as a proportion of total revenue increased to 38% from 27%. Circulation and subscription revenue was marginally up over this period, to about 44%.
Morgan Stanley argues that Dow Jones’ anti-money laundering/know your customer data, information, and services has been, and will continue to be, a fast-growing industry, with historical growth in the range of high teens to low 20s (%) each year.
“Increasing demand for these data is underpinned by stringent and evolving regulatory requirements aimed at combating financial crimes and the growing need for institutions involved in the movement of money to ensure robust risk management and compliance,” the analysts said.
Dow Jones Risk & Compliance generated revenue of US$294 million last financial year, representing 12-14% market share. Morgan Stanley’s estimate of Dow Jones' market share is well below leaders Moody's, LexisNexis and LSEG.
“We therefore see an opportunity for Dow Jones to increase risk & compliance revenues through potential market share gains and/or price increases, new customers, and new product launches,” said the analysts.
“We expect more new product launches, against a background of rising enterprise demand for this sort of proprietary data.”
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