Investors are making a mistake by selling News Corp.
They're ignoring the good news from Tuesday's third-quarter earnings report, choosing instead to obsess over lousy fourth-quarter projections. Revenue will fall $100 million short of last year's Q4 mark, MarketWatch reports, because News Corp.'s Twentieth Century Fox studio has too few movies headed to theaters, a disappointment after Avatar's $2.7 billion worldwide box office haul.
Avatar set a high bar, helping to lift News Corp.'s Q3 operating income from filmed entertainment by 76%. Other hits included Alvin and the Chipmunks: The Squeakquel and X-Men Origins: Wolverine, which combined netted almost $816 million in global box office receipts, reports Box Office Mojo.
Repeating successes like these isn't easy -- hence the muted expectations for Q4 and the resultant selling. Shares of News Corp. were already down 4.5% for the week through yesterday's close, and down another 1% this morning.
A better sideshow
But this is an overreaction, and it fails to acknowledge just how good News Corp.'s Q3 results were when compared to competitors.
Consider Time Warner
Most impressively, operating profit from newspapers and information services rose more than 350%, to $131 million. Of its fish-wraps, The Wall Street Journal did best. News Corp. said its Dow Jones unit -- the controlling segment for the Journal's operations -- improved advertising revenue by 25% and increased its circulation revenue as well. New York Times Co.
This last point is critical; it helps boost News Corp. chief executive Rupert Murdoch's argument that subscribers would pay for great content if Google
I'm not a big fan of Murdoch's public murdering of The Big G on this point. On the other hand, as a writer, I like that there's evidence consumers will pay for content. And I love that News Corp. is winning readers and boosting ad revenue simultaneously. This, not Avatar, is the story of News Corp.'s earnings report.
Without a doubt, Murdoch owes Avatar director James Cameron flowers, candy, and a lifetime contract for the profit machine Cameron created. But advertising is the key to the media business generally and to News Corp. specifically. If ad spending keeps rallying -- and the Q3 numbers suggests it will -- so will the stock.
Is now the time to buy News Corp.? Discuss in the comments box below.
Fool contributor Tim Beyers is a member of the Rule Breakers stock-picking team. He owned shares of Google at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. The Fool's disclosure policy is newsworthy.