In its fourth-quarter conference call, media conglomerate News Corp.'s
But the topic that grabbed my attention the most in this call was the continued success of MySpace. I was particularly pleased to see that News Corp. has been able to accelerate the social-networking site's profitability in recent months. (Review the latest quarter.) Let's take a closer look at the key points management made regarding the state of this major growth opportunity.
From profiles to profits
MySpace has always had the traffic, and the latest numbers were no different. CEO Rupert Murdoch indicated that in recent days the website reached an all-time high of 4.3 billion page views ... in one day! Being able to monetize the website has finally shifted Fox Interactive Media, or FIM -- the segment that incorporates MySpace -- to a full profitable year. Let's look deeper into MySpace's growth story.
- In June, MySpace added 1.5 million unique users to the site and increased page views by 2 billion.
- The same day it achieved 4.3 billion page views, News Corp. was able to simultaneously generate 7.3 billion ad impressions.
- In the fourth quarter, FIM generated approximately $183 million in revenue, a doubling of year-ago levels.
2008 forecast and growth factors
That's quite an accomplishment, considering that this is only the second year that News Corp. has controlled the website. Murdoch pointed out that in the 12 months leading up to News Corp.'s ownership, MySpace generated only $23 million in revenue. Compare that with Murdoch's prediction for fiscal 2008, where he estimates that MySpace alone will "generate in excess of $800 million in revenue." He adds, "We would be surprised if FIM revenues this fiscal year [2008] do not exceed $1 billion, with margins well above 20%." This is an ambitious forecast, and if it happens, it would represent a near doubling of FIM's 2007 revenues of roughly $550 million.
One thing contributing to the aggressive growth forecast for 2008 is the Google
Another factor that benefited MySpace in 2007 and is expected to continue into 2008 is ad weakness from competitors such as Yahoo!
The future
MySpace has seen fantastic growth already, but in many ways, it is still very much in the early stages of harvesting the opportunities before it. Said Chernin, "This is going to be a huge growth driver for years ahead for us, and we need to keep investing to make sure the product is great and our ability to monetize is great."
We can expect to see continued development in international markets, which for the most part remain largely untapped. While FIM's international initiatives are not quite at the level of operating performance as its domestic side, it's not that far behind, either. In fact, when one analyst queried whether the margin forecast includes projected losses from the international segment, Murdoch responded, "On the international, I don't think we expect to lose any money at all."
Chernin explained that in each new territory that FIM enters, there are initial investment costs that need to be recouped, but he added that these losses are made up fairly quickly. The markets are "very profitable" for FIM in places the company has been for at least six to nine months, such as the U.K., Chernin added. Imagine the possibilities in some of the world's fastest-growing economies, such as Russia, India, Brazil, and China.
Beyond emerging markets, MySpace has ample room to grow through continued development of its existing business. Video advertising, for example, will increasingly play a more prominent role for the website. Right now, display ads are the most dominant form of advertising on the website, but management said it sees video advertising assuming the lead role in the not-too-distant future. MySpace TV is already second to Google's YouTube in terms of videos uploaded, according to Chernin.
Another way I foresee News Corp. monetizing MySpace is through a subscriber service tied to a VoIP feature. It could make this happen through a partnership with a company such as eBay's
From international to video to premium subscriber-based features, what it all adds up to is one huge opportunity for News Corp. and its shareholders. Thanks to its social-networking complex, MySpace has offered amazing growth for its parent company. Whether it's talk of a rumored Facebook IPO or the recent IPO offering of United Online's
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Fool contributor Jeremy MacNealy has no financial interest in any company mentioned. The Motley Fool has a disclosure policy.
