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Tuesday, August 22, 2006

Is Wall St Stepping Away From News Corp?

Stocks: (NWS)(VIA)(CBD)(DIS)

News Corporation just can't get enough publicity, especially about its runaway success MySpace. NWS paid a little more than $500 million for the company, and based on some internet measuring services, it is now the most frequented site on the internet. It is unclear that News Corp does not have the "Skype" problem that eBay has of how to make money on an internet phenom, but most investors think Murdoch & Company will work that out.

Short interest in News Corp rose 13 million shares to 34 million in August. With everything going so well, why bet against the company?

Part of the reason may be that the stock has run from $13.94 to $19 in under a year. Shares in companies like CBS have languished.

News Corp's stock trades at 2.3 times sales according to Yahoo!Finance. CBS trades at a 1.5 ratio and Disney at 1.8 times.

Most of the News Corp divisions are doing well. Operating income at newspapers fell in the last quarter, but they are only 17% of the total. The more worrisome issue is whether the film entertainment and television divisions can continue their overheated growth rates. Those two units were 60% of operating income last quarter (with an adjustment for overhead). Film entertainment operating income almost doubled to $200 million. Television revenue was up 17% to $402 million.

It would not take much of a misstep to bring the News Corp stock down some. The current run has been extraordinary, but it can't go on forever.

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