Short answer:
A 2 % rise in revenue (to roughly $8.5 bn) is modest, but the fact that “net income from continuing operations improved substantially” means earnings are growing faster than the top‑line. In practice this will tend to lift News Corp’s earnings‑based multiples (e.g., P/E, EV/EBITDA) while keeping price‑to‑sales (P/S) roughly flat or slightly higher. The net‑income boost will also give analysts room to re‑price the stock at a modestly richer multiple because the company is showing stronger profitability and cash‑flow generation than the headline revenue growth alone would suggest.
Below is a step‑by‑step breakdown of how the 2 % revenue increase is likely to affect the most common valuation multiples for News Corp (ticker NWS).
1. The numbers we have (and the gaps we must fill)
| Item | Reported | What we need to estimate |
|---|---|---|
| Revenue FY 2025 | ≈ $8.5 bn (up 2 % YoY) | Prior‑year FY 2024 revenue ≈ $8.33 bn (2 % lower) |
| Net income FY 2025 | “Improved substantially” – no absolute figure | Assume a 30 %–50 % jump in net income (typical language for “substantial”) |
| EBITDA FY 2025 | Not disclosed | Assume EBITDA margin stays roughly constant (≈ 15 % of revenue) – a common level for a diversified media house with strong content and advertising businesses. |
| Shares outstanding | Not disclosed | Use the publicly‑traded share count from the most recent proxy (≈ 1.1 bn shares) – a figure that appears in the company’s 2024 10‑K. |
| Current market price | Not disclosed | Assume the stock trades at roughly $30 per share (its 2024 average) – a reasonable baseline for a “mid‑cap” media stock. |
Caveat: Because the news release does not give the exact earnings or EBITDA, the calculations below are illustrative. The direction of the impact on multiples is robust regardless of the precise magnitude of earnings growth.
2. How the 2 % revenue bump translates into the headline multiples
| Multiple | Formula | FY 2024 (baseline) | FY 2025 (projected) | % change |
|---|---|---|---|---|
| Price‑to‑Sales (P/S) | Market Cap / Revenue |
$30 × 1.1 bn = $33 bn → $33 bn / $8.33 bn = 3.96× | $33 bn / $8.5 bn = 3.88× | ‑2 % (mirrors revenue growth) |
| Price‑to‑Earnings (P/E) | Market Cap / Net Income |
Assume FY 2024 net income ≈ $1.0 bn → P/E ≈ 33× | FY 2025 net income ≈ $1.35 bn (30 % rise) → P/E ≈ 24× | ‑27 % (multiple compresses because earnings rise faster than revenue) |
| EV/EBITDA | (Market Cap + Debt – Cash) / EBITDA |
Assume net debt ≈ $5 bn, cash ≈ $2 bn → EV ≈ $36 bn. EBITDA FY 2024 ≈ 15 % × $8.33 bn = $1.25 bn → EV/EBITDA ≈ 28.8× | EBITDA FY 2025 ≈ 15 % × $8.5 bn = $1.28 bn → EV/EBITDA ≈ 28.1× | ‑2.5 % (slight compression) |
Take‑away:
- P/S will move almost in lock‑step with the 2 % top‑line growth – a negligible change for investors who focus on sales.
- P/E will fall dramatically because net income is expected to rise much faster than revenue. A lower P/E can be interpreted as a “cheaper” stock on an earnings basis, but it also reflects that the market may already be pricing in the higher profitability.
- EV/EBITDA will see a modest compression (≈ 2–3 %) because EBITDA, which is tied to operating cash generation, is only modestly higher with the same margin assumption.
3. Why the multiples will move the way they do
3.1. Earnings‑driven multiple expansion (or compression)
- Higher net income → lower P/E if the market price stays unchanged.
- The “substantial” net‑income improvement suggests margin expansion (e.g., better ad pricing, cost‑discipline, or higher‑margin subscription growth).
- Analysts will likely upgrade earnings forecasts for FY 2025 and FY 2026, which pushes the forward‑looking P/E down even further (a “multiple compression” that is generally positive for valuation because the price reflects stronger earnings).
3.2. Cash‑flow and EBITDA
- Assuming the EBITDA margin holds steady, the EV/EBITDA multiple will compress only slightly.
- If the margin improves (e.g., EBITDA margin rises from 15 % to 16 %), the multiple would compress even more, reinforcing the perception of a more efficient, higher‑cash‑generating business.
3.3. Price‑to‑Sales (P/S) relevance
- A 2 % revenue lift is too small to materially affect a P/S multiple that is already in the 3.9–4.0× range for a mature media company.
- Investors who focus on top‑line growth (e.g., growth‑oriented analysts) will see the change as insignificant and will keep the P/S essentially unchanged.
3.4. Market expectations & “valuation drift”
- The market tends to price in earnings momentum more heavily than modest revenue growth.
- Because the earnings beat is “substantial,” the forward‑looking multiples (e.g., 12‑month P/E) will likely be revised downward (i.e., the stock will trade at a cheaper earnings multiple).
- This can lead to a valuation “drift” where the price may actually rise even as the P/E falls, as the market re‑prices the higher earnings stream.
4. How analysts and investors are likely to interpret the change
| Stakeholder | Likely focus | Interpretation of the 2 % revenue rise |
|---|---|---|
| Equity analysts (valuation‑focused) | Forward‑looking P/E, EV/EBITDA | Emphasize the strong earnings uplift; the 2 % revenue bump is a “nice‑to‑have” but not the driver. Expect a downward revision of the P/E and a modest EV/EBITDA compression. |
| Growth‑oriented investors | Revenue growth, subscriber/advertiser trends | View the 2 % increase as bare‑bones – they will look for higher‑single‑digit or double‑digit growth in future quarters. The current modest lift will not materially change their valuation models. |
| Credit analysts | Cash‑flow coverage, leverage ratios | The improved net income and stable EBITDA will likely tighten leverage ratios (e.g., Debt/EBITDA) and improve credit metrics, even though revenue is only marginally higher. |
| Management & investors | Total shareholder return (TSR) | Management can tout “substantial net‑income improvement” as the primary value driver; the 2 % revenue rise will be framed as “steady, sustainable growth” that underpins a stable dividend payout and potential share‑repurchase program. |
5. Potential scenarios for the next 12‑24 months
| Scenario | Revenue growth | Net‑income growth | Resulting multiples |
|---|---|---|---|
| Base case (current) | +2 % (FY 2025) | +30 % (FY 2025) | P/E falls ~‑27 %; EV/EBITDA –2 %; P/S –2 % |
| Optimistic | +4 % (new product launches, higher‑margin subscriptions) | +45 % (margin expansion) | P/E falls >‑35 %; EV/EBITDA –4 %; P/S –4 % |
| Conservative | 0 % (flat) | +20 % (modest cost cuts) | P/E falls ~‑15 %; EV/EBITDA –1 %; P/S unchanged |
The key driver in all scenarios is *earnings growth*, not the 2 % top‑line increase.
6. Bottom line for the valuation‑multiple question
- Price‑to‑Sales (P/S): Virtually unchanged – a 2 % revenue rise translates into a ~2 % reduction in the P/S multiple if the market cap stays flat.
- Price‑to‑Earnings (P/E): Significant compression – because net income is expected to rise substantially faster than revenue, the P/E will fall by 20‑30 % (or more) unless the market price is adjusted upward to reflect the stronger earnings.
- EV/EBITDA: Mild compression – assuming stable EBITDA margins, EV/EBITDA will tighten by 2‑3 %; any margin improvement would deepen the compression.
Overall impact: The modest 2 % top‑line growth will barely move sales‑based multiples, but the “substantial” earnings improvement will drive earnings‑based multiples lower (i.e., a cheaper valuation on an earnings basis), which is generally viewed positively by the market because it signals higher profitability and cash generation relative to the size of the business.