MySpace drags Murdoch down
Analyst Michael Nathanson at Sanford Bernstein cut his price estimate on New York-based News Corp, the media company Murdoch controls, 13% last week to 21, and UBS’s Michael Morris cut his target by $1 to 25.
They acted after Fox Interactive Media — including MySpace, the biggest social networking site — said it would miss its goal for this year of $1bn in revenue, or 3% of News Corp’s projected sales.
Murdoch is pouring resources into MySpace to expand into South Korea and India, add music downloads and target users with promotions.
As a result, Fox Interactive’s costs would jump 46% this year, almost as much as revenue, risking long-term profit growth, Nathanson said in a report last week.
Marketers were reluctant to place ads next to user-generated content and News Corp no longer warranted the 20% premium to the earnings multiple of the Standard & Poor’s 500 index he previously imputed in estimates, Nathanson said.
Daniel Poole, assistant research director at National City Corp, which manages $34bn in Cleveland, said: “When you have such a powerful asset as MySpace and you can’t successfully monetise it, that’s a problem for investors.”
He does not plan to add to the 18000 News Corp shares he oversees. “It’s hard to argue for multiple expansion when you have that many visitors and you’re not making the amount of money you thought.”
News Corp class A shares fell the most in five years the day Nathanson and Morris cut their estimates. The stock, down 9,6% this year, rose 44c to $18,52 on Friday in New York.
The company’s bond spreads over yields on comparable US treasury obligations have widened as the share price has fallen. News Corp’s 6,2% bonds due in 2034 rose 0,4c on Friday to 93,4c on the dollar and yield 6,73%. On April 3, before Fox Interactive said it would miss its sales goal, the bonds yielded 6,52%.
MySpace’s audience as of February was 107,7-million users, little changed since March last year, while second-place Facebook tripled to 100,3-million. News Corp bought MySpace in 2005.
“Marketers don’t know what their brands will be placed next to,” said an analyst at T Rowe Price Associates , which owns $400bn in assets.
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