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WIKI ANALYSIS
Thomson Reuters (NYSE: TRI, TSX: TRI, LSE: TRIL, NASDAQ: TRIN) provides data, information, and analysis products to businesses and professionals in the financial, legal, tax and accounting, healthcare and science, and media markets. These products are mostly distributed as electronic content and on a subscription basis.
Thomson Reuters is comprised of two segments: Markets, which consists of its financial and media businesses, and Professional, which consists of its legal, tax and accounting, healthcare, and science businesses. The Markets segment specializes in news media distribution and integrates its technology into the workflows of professionals across the financial services sector, resulting in customized analytics for its clients. The segment's main competitor is Bloomberg L.P. The Professional segment provides information, decision support tools and services to its non-financial businesses. It is supported largely by its Legal division, which boasts a duopoly alongside global publisher Reed Elsevier NV (ENL).
In fiscal 2008, Thomson Reuters witnessed a 62% revenue increase over the previous year thanks to the Reuters Group (RTRSY) acquisition and the ensuing revenue synergies. The transaction has also allowed Thomson Reuters to focus singularly on its information services and to expand its exposure abroad (42% of its clients were international after the acquisition, as opposed to 17% pre-acquisition).[1]
Company Overview
Headquartered in New York and handling major operations in London and Eagan, Minnesota, Thomson Reuters employs more than 50,000 people, including more than 2,500 journalists, in over 90 countries[2].
In order to provide intelligent information to business and professional customers around the world, Thomson Reuters focuses on integrating its proprietary content with technology. In particular, the company uses technology to maximize the value of information. Thomson Reuters continually improves its algorithms, search capabilities, user interfaces, workflow, collaboration tools, and data.
In 2009, 86% of Thomson Reuters's revenues were derived from subscriptions or similar contractual arrangements, which result in recurring revenues. Revenues are supported by a relatively fixed cost base that is generally not impacted by fluctuations in revenues. Subscription arrangements are most often for a term of one year and renew automatically.
Business and Financial Metrics
First Quarter 2010 Results[3]
Thomson Reuters reported revenues of $3.1 billion before currency effects, down 2% compared to the first quarter of 2009. Operating profit was $555 million, a decline of 6%. The company had several important product launches during the quarter, including:
- WestlawNext, which signed up 2,300 customers within the first three months of the product launch
- Elektron, a new data distribution service in the Markets division’s Enterprise business.
Later in 2010, Thomson Reuters plans to launch:
- Eikon, a desktop platform from the Markets division
- ONESOURCE global tax workstation from the Tax & Accounting business, which is expected to
provide a new approach to global tax compliance for multinational corporations.
Business Segments
Markets (58% of total 2009 revenue)
The Markets division serves financial services and corporate professionals globally, with Reuters Media serving a broader professional and consumer media market. The Markets division delivers critical information, supporting technology and infrastructure to a diverse set of customers. Thomson Reuters is heavily reliant on its Markets division, composed of Investment & Advisory, Sales and Trading, Enterprise, and Media businesses, each providing a unique product suite to professionals.
Sales & Trading (47% of Markets segment revenue in 2009): Sales and Trading dominates the Markets division, providing services to roughly 34,000 locations worldwide in 2009. It allows over 200,000 professionals to trade and communicate with each other and connect their systems to electronic markets. Its core services are Reuters 3000 Xtra, a desktop information-product that provides analytics and trade connectivity tools to over 125,000 financial market professionals and Reuters Trader, a regional market-focused data desktop that reaches over 2,500 institutional clients. Also, Reuters's Tradeweb operates a global multi-dealer-to-customer trading platform which, as of 2009, connected more than 35 major investment banks with over 2,000 institutional clients. During 2009, clients traded an average of more than $280 billion daily over the platform.[4]
Investment & Advisory (31% of Markets segment revenue in 2009): Investment & Advisory provides differentiated analytics, content and workflow tools that drive complex financial decision-making and increase performance and efficiency for customers in corporate services, investment management and research, investment banking and wealth management. Through Reuters News and Datastream, Investment & Advisory provides an integrated platform of market analysis, online communication solutions, and customizable products to money managers, institutional clients, and bankers around the world. The Investment & Advisory segment includes:
- Corporate Services
- Investment Management & Research
- Investment Banking
- Wealth Management
Enterprise (17% of Markets segment revenue in 2009): Enterprise offers real-time financial instrument pricing and reference data to improve the pricing transparency and trade execution of their customers, which includes algorithmic traders, hedge fund managers and compliance officers. Thomson Reuters's database included coverage of over 67 million instruments in 2009 and is backed by a flexible distribution and management infrastructure that ensures consistency of data.[4] Enterprise information products are broadly segmented into three categories – real-time content solutions, pricing and reference data, and market information distribution and management platforms.
Media (5% of Markets segment revenue in 2009): Through Reuters, its news and media brand, Media provides business-tailored news as well as wholesale news services to professionals, offering real-time minute-by-minute commentary and analysis of the markets.[5] Reuters Media is powered by more than 2,700 journalists reporting from 200 bureaus around the world.[4] Reuters News Agency provides the world’s media companies with text newswires, pictures, graphics, video and digital multimedia products.
Professional (42% of total 2009 revenue)
The Professional division, as mentioned above, is composed of Legal, Tax & Accounting, Scientific and Healthcare subdivisions. It has capitalized on its cutting edge technology to provide user-friendly electronic databases to sectors that would otherwise be forced to rely on print releases and circulars for their information.
Legal (66% of Professional segment revenue in 2009): Legal provides decision support tools to legal, compliance, business and government professionals, utilizing its electronic databases to enable its customers to research and make full use of its extensive legal information network. It also provides lawyers with services for completing transactions such as mergers and securities offerings. Alongside Reed Elsevier NV (ENL), it is virtually a duopolist in the legal information business.
Tax & Accounting (18% of Professional segment revenue in 2009): Tax & Accounting provides integrated tax compliance software and services, as well as automation and information solutions, to professionals in accounting firms, corporations, and government agencies. Effective January 1, 2010, Tax & Accounting was reorganized into two global businesses – Workflow & Service Solutions and Business Compliance & Knowledge Solutions.
Healthcare and Science (15% of Professional segment revenue in 2009): Healthcare focuses on improving the clinical and business performance of its clients, providing them with decision support solutions[6]. Scientific provides technology to academic, government, corporate and pharmaceutical research professionals that facilitates the product release steps of research and development.
Acquisitions and Divestitures
In 2009, Thomson Reuters acquired 31 companies, 23 in the Professional segment and 8 in the Markets segment. The total cash cost of these transactions was $349 million. The largest recent transaction was the company's acquisition of Reuters for approximately $16 billion in 2008.[4]
In 2009, Thomson Reuters received net proceeds of $56 million from the sale of businesses.[4] In 2008, Thomson Reuters realized net proceeds of $244 million from various disposal activities, which included the sale of copies of certain databases in order to obtain regulatory approval for the Reuters acquisition and the sale of other businesses and investments, including a non-controlling interest in a subsidiary.[4]
Trends and Forces
Cyclicality of the Financial Data Industry Makes Thomson Reuters Susceptible to Market Swings
The financial data industry, like the financial sector it services, is volatile, with contraction and growth closely pegged to the business cycle. When the economy is growing rapidly, demand for the integrated information systems offered by Thomson Reuters increases. Conversely, if the economy is depressed, firms look for ways to reduce costs, and the subscription-based model of the information and delivery services industry is particularly vulnerable. In 2009, Thomson Reuters derived approximately 86% of its revenues from financial and legal customers.[4] Cost-cutting by any of the company's customer segments can adversely affect its financial results.
Decreasing Demand for Print Affects the Competitive Landscape of the Media Industry
Since January 2008, more than 120 newspapers across the United States have shut down as a result of the 2008 financial crisis and changing consumer behavior in favor of Internet-based news.[7]. With 90% of Thomson Reuters’ media distributed electronically in fiscal 2009, it has resisted, if not benefited from, this trend, whereas more print-focused competitors have lost significant revenue. Additionally, certain financial data competitors like Bloomberg L.P. service many of the national American newspapers, whereas Thomson Reuters does not. This lack of exposure protects Thomson Reuters from the decline of the print media industry[8].
Stricter Anti-Trust Regulation Could Loosen Thomson Reuters' Grip on the Financial Data Industry
A swing from President George W. Bush’s staunchly pro-business stance, President Obama's administration has vowed to reinvigorate anti-trust enforcement, something that could affect Thomson Reuters's clout and market share in many of its electronically-disseminated services[9]. In preparation for the 2008 merger, which reduced the number of large-scale financial data providers from three (Thomson Financial, Reuters, and Bloomberg LP) to two, Thomson Reuters was forced by the Justice Department to license certain data-related intellectual property and make several small divestments to meet competitive regulatory requirements[10]. Stricter antitrust reviews in the future could force Thomson Reuters to restructure further.[11]
Competition
Although Thomson Reuters offers a diverse product suite, the fiercest competition is in its financial data services business.
- Bloomberg L.P. A privately-held worldwide information services, news, and media corporation. In the realm of financial data services, its biggest product is the Bloomberg terminal, an all-inclusive, subscription-based platform[12].
- Dow Jones A subsidiary of News Corporation (NWS), Dow Jones is a leading provider of news and financial information.[13] The company publishes The Wall Street Journal, the world's leading financial daily paper and owns the investing information site MarketWatch.com[13] and financial news aggregator Factiva.[14][13]
- Interactive Data (IDC) IDC is a financial market research provider for large financial institutions, active traders, and independent investors. IDC provides market information on equities, including options, fixed-income securities, and stocks, and is comprised of four businesses to better service its customers.
- FactSet Research Systems (FDS) A financial data and analysis products provider offering a single online platform that aggregates information from over 200 information databases. All of its clients are in the Financial Services industry, with the vast majority involved in investment management.
- Reed Elsevier NV (ENL) A global publisher and information provider headquartered in London and Amsterdam that competes with Thomson Reuters in the Legal segment, famous for its journal LexisNexis.
Thomson Reuters's competitors by segment are broken down as follows:
Sales and Trading[4]
- Bloomberg L.P.
- Sungard
- Telekurs
- Interactive Data (IDC)
- Markit
- SuperDerivatives
- Quick (JSD:4318)
- Xinhua Finance (TYO:9399)
- Yahoo! (YHOO) Finance
- Fidessa Group (FDSA-LN)
- Icap (LON:IAP)
- FXall
- MarketAxess Holdings (MKTX)
Investment & Advisory[4]
- Bloomberg L.P.
- FactSet Research Systems (FDS)
- S&P/Capital IQ
- Morningstar Inc. (MORN)
- GL
- Trade/Infotec
- Telekurs/Fininfo
- SunGard Data Systems
- Broadridge Financial Solutions (BR)
Enterprise[4]
- Bloomberg L.P.
- Standard & Poor's
- Interactive Data (IDC)
- Telekurs
- NYSE Euronext
- International Business Machines (IBM)
- Sungard
- Algorithmics
- Murex
- Misys (LON:MSY)
- Calypso
- Eagle
- Simcorp (BER:XCL)
- Dimension
- PAM
- Beauchamp
- DST
Media[4]
- Associated Press
- Agence France-Presse
- Dow Jones
- Getty Images (GYI)
- Bloomberg News
- Wall Street Journal
- Bloomberg
- Forbes .com
- Yahoo! Finance,
- CNN Money
- FT.com
- Euromoney
- Informa Global Markets
Legal[4]
Healthcare and science
- Reed Elsevier (RUK)
- Wolters Kluwer (AMS:WKL)
- Premier
- MedAssets
- Ingenix (a division of UnitedHealth Group).
- Chemical Abstracts Services (CAS)
Tax accounting[4]
- Wolters Kluwer (AMS:WKL)
- Intuit (INTU)
- CORPTAX (owned by MLM Information Services)
- Vertex
Market Share
As of 2009, Thomson Reuters was the industry leader in financial data services with a 34% market share (with respect to client base), according to Burton-Taylor International Consulting LLC, a financial news and market data research firm. Bloomberg L.P. holds 24% of the market, falling from a 33% stake at the time of the Reuters merger. FactSet Research Systems (FDS) , Interactive Data (IDC) and SIX Telekurs, the next three on the list, together hold less than 8% market share, highlighting the duopolistic nature of the industry[15]. The rest of the market is comprised of small, local providers, roughly two to five per country[16].
| Rank | Company | Market Share |
| 1 | Thomson Reuters | 34% |
| 2 | Bloomberg L.P. | 24% |
| 3 | Interactive Data (IDC) | 3.30% |
| 4 | FactSet Research Systems (FDS) | 2.50% |
| 5 | SIX Telekurs | 1.20% |
| 6 | Small regional competitors (Private) | ≈35% |
References
- ↑ Swami Shanmugasundaram, Morningstar, “Thomson Reuters Reports 1Q Results”
- ↑ TRI 1Q09, 6-K
- ↑ Thomson Reuters: First Quarter Report: Period Ended March 31, 2010
- ↑ 4.00 4.01 4.02 4.03 4.04 4.05 4.06 4.07 4.08 4.09 4.10 4.11 4.12 Thomson Reuters 2009 Annual Report
- ↑ Reuters, Thomson Reuters Company Profile
- ↑ TRI 2008, 20-F
- ↑ Stephanie Chen, CNN, “Newspapers Fold As Readers Defect and Economy Sours”
- ↑ “Struggling U.S. Newspapers Look to E-Readers” 05/05/2009
- ↑ news_top news index - temp_news + analysis Michael Orey, “Obama Appoints Antitrust Chief,” 1/22/09
- ↑ “Justice Department Requires Thomson To Sell Financial Data and Related Assets In Order to Acquire Reuters” 02/19/2008
- ↑ Robert Schroeder, Market Watch, “Thomson-Reuters Deal Faces Tough Antitrust Review”, 05/15/2007
- ↑ Google Finance's Coverage of Bloomberg
- ↑ 13.0 13.1 13.2 Hoover's Coverage of the Dow Jones Company
- ↑ Google Finance's Coverage of Factiva
- ↑ “Challenging Year for Thomson Reuters, Bloomberg and Financial Information/Analysis Market” 02/17/2009
- ↑ “Burton-Taylor International Consulting, "Financial Information/Analysis Spend-2009"
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