MySpace Is Losing Ground: Should News Corp Care?

| About: News Corporation (NWS)

MySpace, owned by News Corp (NASDAQ:NWS), competes with Facebook and other social networking sites. MySpace has been losing top talent lately as a result of slowing growth, declining ad revenues and lack of a clear direction for growth. We estimate that MySpace constitutes only about 2% of News Corp’s stock, and that even if MySpace were to turn around, the upside for News Corp would be small.

Below we discuss some of the issues concerning MySpace, the value MySpace adds to News Corp, and what impact will an MySpace could have on News Corp’s stock if things were to improve.

Monetization Becoming More Difficult as Page Views and Ad Pricing Decline

We estimate that the number of unique visitors for MySpace has increased from 110 million in 2008 to 116 million in 2009. However, we estimate that the average page views per visitor per month has declined from 455 to 364 during same period. Revenue per 1000 page views also declined from about $1.56 in 2006 to $0.90 in 2009.

Moreover, some of the key senior employees of MySpace have left, which can be attributed to MySpace’s lack of direction and a clear strategy to revitalize growth. Unfortunately for MySpace, its contribution to News Corp’s value is small, making it unlikely that News Corp is focused on MySpace’s revival.

MySpace is 2% of News Corp’s Stock

We estimate that MySpace constitutes around 2% of News Corp’s stock, translating to only around $1 billion of our $46 billion estimate for News Corp. Even if MySpace were to disappear, News Corp’s stock price will see a downside of only about 2%, resulting in 40 cents per share loss of value.

Even Rejuvenated MySpace Cannot Boost News Corp’s Stock by More Than 2%

We estimate that MySpace’s capability to drive News Corp’s stock is quite small. Below is an optimistic scenario we consider by the end of Trefis forecast period:

  1. MySpace is able to track Facebook’s growth trajectory, driving its unique visitor count to about 430 million
  2. With new enhancements and user engagement initiatives, the website’s monthly page views per visitor increase to more than 500 (close to 2005 levels)
  3. Ad pricing stabilizes around current levels

In such a scenerio, the price upside is likely to be about only 25 cents per share, less than 2% of our current estimate of $17.78 for News Corp’s stock. You can modify our MySpace forecasts shown above to see the limited impact of MySpace on News Corp in various scenarios.

For additional analysis and forecasts, here is our complete model for News Corp’s stock.

Author's Disclosure: no positions

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