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WIKI ANALYSIS
Thomson Reuters (TRI) is a dual-listed holding company that provides aggregated financial data and analysis products to businesses and professionals worldwide. These products are mostly distributed as electronic content and on a subscription basis (90% and 86%, respectively, in FY2008)[1]. Formed after Canada-based Thomson Corporation’s $17 billion acquisition of UK-based Reuters Group (RTRSY) in June 2008, the company possesses 34% of the financial data market (as of February 2009), substantially ahead of fellow industry duopolist Bloomberg L.P., who holds 24%[2].
Thomson Reuters is composed 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. Markets, responsible for 61% of its revenues in FY2008[3], 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. Professional 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 FY2008, Thomson Reuters witnessed a 62% revenue increase over the previous year thanks to the Reuters Group (RTRSY) acquisition and the ensuing revenue synergies. Its management expects integration programs will save the company over $1.8 billion by the end of FY2009[4]. 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 as of December 31, 2008, as opposed to 17% pre-Reuters transaction)[5].
Business 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[6]. Before the Reuters acquisition, the Thomson Corporation was a conglomerate with budding businesses in anything from travel to oil drilling. The addition of its media industry publisher strengthened its stance in the information systems industry in a number of ways. Firstly, it allowed it to focus on its profitable information services and spin off unprofitable non-core competencies. Secondly, it saved the company $850 million in cost synergies, and management declared an additional $975 million could be saved from the restructuring's progress by the end of 2009[7]. Lastly, it fortified its international exposure, catering to a more geographically diverse client base (58% of revenues from the Americas, 32% from EMEA, and 10% from Asia in FY2008)[8]. It is now the pacesetter in the financial data industry, controlling 34% of the overall market (including 30% and 38% of the North American and European data markets, respectively[9]) and ahead of ardent rival Bloomberg L.P. by 1000 basis points as of April 2009[10].
Business and Financial Metrics
In FY2008, The Thomson Corporation observed total revenues jump 62% over the previous year due to higher transaction revenues from existing businesses and the acquisition of media titan Reuters Group (RTRSY), which expanded operations abroad. It financed the merger through a cash and stock deal, paying each holder of a Reuters share $6.99 in cash and .16 Thomson Reuters, PLC shares[11]. Its merger boosted Thomson Corp.'s Markets revenue 284% to $6.2 billion and its balance sheet 58% to $36 billion, and it managed to finish the year with $840 million of cash on hand and $2.5 billion in untapped credit facilities[12]. However, the heavy costs of financing this $17 billion transaction resulted in a YoY net income drop of 65% to $1.4 billion, and a profit margin decrease of 78%[13].
| Financial Data for Thomson Reuters, in millions | 2008 | 2007 | 2006 | 2005 | 2004 |
| Total Revenue | 11,707 | 7,296 | 6,591 | 8,703 | 8,098 |
| Operating Income | 1,693 | 1,297 | 1,258 | 1,464 | 1,341 |
| Net Income | 1,405 | 4,004 | 1,120 | 934 | 1,011 |
| Profit Margin | 14.5% | 17.8% | 18.9% | 16.8% | 16.6% |
| Number of Employees | 53,700 | 32,900 | 32,400 | ||
Business Segments
Markets ($6.3 billion, 54% of Revenue in FY2008)
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 (48% of Markets Total Revenue in FY2008): Sales and Trading dominates the Markets division, providing services to roughly 34,000 locations worldwide. 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.
Investment & Advisory (30% of Markets Total Revenue in FY2008):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.
Enterprise (16% of Markets Total Revenue in FY2008): 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.
Media (6% of Markets Total Revenue in FY2008): 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.
Professional ($5.4 billion, 46% of Revenue in FY2008)
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 (64% of Professional Total Revenue in FY2008): 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 (16% of Professional Total Revenue in FY2008): 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.
Scientific (12% of Professional Total Revenue in FY2008): Scientific provides technology to academic, government, corporate and pharmaceutical research professionals that facilitates the product release step of research and development.
Healthcare (8% of Professional Total Revenue in FY2008) : Healthcare focuses on improving the clinical and business performance of its clients, providing them with decision support solutions[15].
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. This was evident in 1Q09, as revenue growth slowed in the Markets division to 0.4% (ignoring currency impact) amid continuing financial sector contractions[16].
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.[17]. With 90% of Thomson Reuters’ media distributed electronically in FY2008, 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[18].
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' clout and market share in many of its electronically-disseminated services[19]. 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, it was forced by the Justice Department to license certain data-related intellectual property and make several small divestments to meet competitive regulatory requirements[20]. Stricter antitrust reviews in the future could force Thomson Reuters to restructure further.
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[22].
- Dow Jones A subsidiary of News Corporation (NWS), Dow Jones is a leading provider of news and financial information.[23] The company publishes The Wall Street Journal, the world's leading financial daily paper and owns the investing information site MarketWatch.com[23] and financial news aggregator Factiva.[24][23]
- 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 ' '.
Market Share
As of February 2009, Thomson Reuters is 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[25]. The rest of the market is composed of small, local providers, roughly two to five per country[26].
| 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
- ↑ TRI 2008, 20-F
- ↑ Robert Schroeder, Market Watch, “Thomson-Reuters Deal Faces Tough Antitrust Review”, 05/15/2007
- ↑ TRI 2008, 20-F
- ↑ Swami Shanmugasundaram, Morningstar, “Thomson Reuters Reports 1Q Results”
- ↑ Swami Shanmugasundaram, Morningstar, “Thomson Reuters Reports 1Q Results”
- ↑ TRI 1Q09, 6-K
- ↑ Swami Shanmugasundaram, Morningstar, “Thomson Reuters Reports 1Q Results”
- ↑ TRI 1Q09, 20-F
- ↑ TheStockAdvisors, “Good News for Thomson Reuters,” 04/20/2009
- ↑ “Challenging Year for Thomson Reuters, Bloomberg and Financial Information/Analysis Market” 02/17/2009
- ↑ Hane, Paula "Thomson and Reuters Confirm Their Deal" 05/21/2007
- ↑ Swami Shanmugasundaram, Morningstar, “Thomson Reuters Reports 1Q Results”
- ↑ TRI FY2008, 20-F
- ↑ Reuters, Thomson Reuters Company Profile
- ↑ TRI 2008, 20-F
- ↑ Swami Shanmugasundaram, Morningstar, “Thomson Reuters Reports 1Q Results”
- ↑ 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
- ↑ 23.0 23.1 23.2 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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