News Corp.’s rising stock price Tuesday shows a disconnect between the way that media observers and investors perceived the Parliament hearings with Rupert and James Murdoch.
The stock continued its upward path early in the day Wednesday, but retreated later on. It’s still down almost 11 percent since the phone-hacking scandal went into overdrive with the Guardian’s report that News of the World journalists had hacked into the voice mail of a murdered girl.
Analysts gave a range of explanations for Tuesday’s bump, but they all have a common theme: Investors came into the hearing with different, and lower, expectations than those in the media. Essentially, while the media have focused on the journalism scandal, investors are concerned with the business implications — and newspapers are just a portion of News Corp.’s business.
- James Murdoch acquitted himself well, showing himself to be a strong leader capable of leading the company in the future.
- Rupert Murdoch said he wasn’t going to step down, indicating stability in top management.
- The two distanced themselves from the wrongdoing and portrayed themselves as having been misled by those they trusted.
- No new, damning information came to light.
- With the stock down substantially, some investors simply took advantage of a good price on a solid company.
“This was the best day these guys have had in a really long time,” David Bank, media analyst for RBC Capital Markets, told The New York Times. “No shoe dropped, no smoking gun was found, it all sort of sounded kind of contained.”
“Neither Rupert nor James did any damage to the company,” Thomas Eagan of Collins Stewart told the Times.
Rick Edmonds, Poynter’s media business analyst, gave me another reason: The bad news of the prior two weeks, and the stain of the hearing, was already reflected in the stock’s price.
“The way the market works, it’s all about future value,” Edmonds said. When there’s trouble on the horizon, “the market adjusts accordingly.”
The Monday before the hearing was the low point for News Corp.’s stock since the scandal heated up on July 4.
The market also anticipated News Corp.’s decision to drop its takeover of British Sky Broadcasting. News Corp.’s stock price fell as it became clear that the British government wouldn’t approve the deal. When News Corp. announced on July 13 that it was pulling out, the price rose because investors liked the fact that the company would not “get tangled up and distracted by a futile fight,” Edmonds said.
As for Tuesday’s gain, Edmonds noted that the stock rose in after-hours trading Monday night, and that continued at Tuesday’s opening, which coincided with the Murdochs’ appearance at the hearing. And the market in general went up on Tuesday.
The positive outlook is not unanimous. Standard & Poors has warned that it could downgrade the company’s credit rating due to the risks from the various inquiries and its belief that the “executive bench strength” has been weakened.
Edmonds believes, however, that Chief Operating Officer Chase Carey is well-positioned to run the company, especially given his experience as CEO of DirecTV.
Although the company may be undervalued, Malcolm Polley of Stewart Capital told ABC News, the uncertainty for investors is what News Corp. is doing with all of its holdings. “It has lovely franchises — the Wall Street Journal is one. But, what is it going to do with them, what is he going to do with them? Other than wanting to control the widest swatch of media available, I don’t know what his strategy is.”