Lousy result but no nasties

So why did the stock price go up 3 per cent yesterday? Professional players in the market will quickly explain that the market values shares on estimates of current and future earnings rather than historical earnings.

The market already knew News Corp was going to post a massive loss most of it had already been announced with the half-year and third-quarter earnings results.

Those investors that can affect the pricing of News Corp had already adjusted for this loss and so it was already built into the price.

All the market was looking for yesterday was how the company's underlying earnings were tracking and whether there were any nasty little accounting surprises hidden away.

On both counts the company got a tick and during the media briefing a question that even vaguely hinted at accounting was greeted with a response from Rupert Murdoch that he would have no trouble in signing these accounts under oath.

And after taking writedowns of nearly $16 billion for the year, one would hope that all the accounting issues would have been dealt with.

The response from analysts yesterday was generally very positive especially when News management was so definite about an advertising recovery in the US.

The response to the third-quarter result was much the same. So does this mean that companies are able to overpay or overvalue assets by billions of dollars and be forgiven, as long as write-offs are put into the ``one-off" basket?

Not necessarily. Much of the share price hurt resulting from the overpayment for assets has been taken over the past year. The current share price is a fraction of where it was 18 months ago.

The other issue for investors is that an overvaluation in the books is a negative but nowhere near as problematic as an asset that is causing a drag on operational earnings.

The reason the man in the street might be a little bemused by the treatment afforded Murdoch is that if mistakes of this magnitude have been made in the past, why should investors feel sure that they won't happen again?

Murdoch says everyone makes mistakes and plenty of companies in the media and telecom sector make bigger ones.

It was clear from the post-result briefings that Murdoch is completely undeterred by these big red numbers.

He is dogged about sticking to his strategy in the face of what he described as the two black eyes of German media operator Kirch and Gemstar (the writedown in the value of which was responsible for the largest part of the loss and, if the stock price of Gemstar stays where it is, there will be another $US175 million write-off in the first quarter of fiscal 2003).

The vision premium has now been removed from the News share price, according to Murdoch, even though his vision to create a packager and distributor of content hasn't changed.

Yet Murdoch is still a big believer in Gemstar. When asked whether this enormous loss would make News a more conservative investor in future, Murdoch made the point that he did not flinch from what he had done.

He is the controlling shareholder in News and, as far as he is concerned, this gives him the ability to make those big visionary calls long-duration investments, as the market terms them.

Those that can't stand the excitement can invest elsewhere but should remember that Murdoch's vision has taken him from a tiny Adelaide newspaper to where the sun never sets on his empire.

The recovery in News Corp stock will continue while the outlook for core earnings is good.

There is only one glitch: the next time Murdoch announces some far-sighted but medium term earnings-erosive acquisition, the share price will plunge again.

In answer to most of the questions thrown at management yesterday, such as his interest in Vivendi's stake in Echostar (or some more Kirch assets) the reply was a resounding no. But Murdoch is moving to close the acquisition of a pay TV monopoly in Italy.

So history is providing a useful guide: News is again on the acquisition trail. We also know that Murdoch is not afraid to suffer profit pain in the short- to medium-term to further his vision.

As he gets older Murdoch seems even less inclined to entertain criticism of this vision. The perceived conservatism of his son Lachlan is increasingly being considered as an attribute.