There’s a scary story for News Corp
shareholders in today’s Oz – Rupert Murdoch looks like embarking on another spending spree, paying many,
many billions of dollars for dot coms.

That’s the logical outcome of his
surprising prediction that News Corp’s internet arm will produce “a
conservative one billion dollars” in profits by 2010.

Let’s just do a quick check of the maths.
The dot coms are back in favour with the market and those that are making
profits are rather expensive. Amazon, for example, has taken a sharp dive since
announcing lower-than-expected profits last week but is still trading on a
price/earnings ratio of 48 despite its growth rate slowing.

In case Rupe is losing track of time, this
is 2006, which means he thinks his internet business can go from bugger-all
profit today to more than US$1 billion in four years. Let’s pretend you can buy
worthwhile, profitable, growing internet companies on a PE of 40. Even allowing
for the US$1.3 billion News Corp spent buying dot coms last year and being
generous about how quickly their profits might grow, that means Rupe must be
thinking of splurging about US$10 billion a year for the next four years.

They are very rough figures, but you catch
the drift. It’s why News Corp has such a lousy record of not producing earnings
per share growth. Crikey readers will recall Mike Mangan’s very nice
analysis of News Corp’s real performance away from the spin and control exerted
by the empire.

For shareholders, the sad thing is that
Murdoch missed the chance to buy good internet assets when their price was
down. He wasted money with the best of them during the bubble, went to sleep
when opportunity was knocking and is now promising to come out spending your
money again. He doesn’t change.