Bear Stearns updates News Corp. model to reflect Dow Jones acquisition

NEW YORK, Jan 03, 2008 (Thomson Financial via COMTEX) -- NWS.A | charts | news | PowerRating -- Bear Stearns on Wednesday reduced its News Corp. fiscal 2008 earnings estimate by 1 cent a share after factoring in the company's $5.53 billion acquisition (including equity and debt assumption) of Dow Jones & Co.

The new model doesn't assume the Wall Street Journal Web site's transition from subscriber-only domain to a free site driven by advertising revenue. However, the firm's analysis of such a move concludes that the benefits would probably outweigh the risks.

Analyst Spencer Wang used company-provided information and outside data to estimate that News Corp. would have to increase its online traffic 12-fold in order to replace subscription revenue with advertising.

In comparison to other free financial news sites, Wang found "on average, free ad-supported sites generate six times the number of pages views that the wsj.com does currently," he said.

A potential risk to the free Web site model is the breakdown of the Wall Street Journal's print subscriptions, but Wang considers this unlikely given steady growth of the New York Times's print subscriptions after offering free online content and because the core Wall Street Journal reader has above-average disposable income.

"We think a large portion of [Journal] readers also appreciate the physical hard copy of the WSJ, particularly for those who commute to work in the morning," he said.

Wang also provided a second-quarter preview, leaving his estimates for News Corp. relatively unchanged at revenue growth of 2.1% to $8 billion and 2.7% growth for earnings before interest and taxes to $1.18 billion. Including the acquisition, he anticipates second-quarter earnings of 25 cents a share.

The mean estimate of analysts polled by Thomson Financial is for second-quarter earnings of 28 cents a share and revenue of $8.15 billion.

Shares of the media company were down nearly 3% at $20.64. Melinda Peer mp/pc

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