After Financial And Risk Stake Sale, Can Thomson Reuters Achieve Faster Revenue Growth?
Thomson Reuters (NYSE: TRI) is a news, information and analytics provider for financial markets. The company’s customers include trading communities, investment, financial and corporate financials. In January 2018, the company announced that it entered into an agreement to sell a 55% stake in its Financial and Risk Division (the segment accounting for more than 50% of its revenues) in order to focus on other key segments and accelerate growth.
In this note we take a look at the company’s business segments and the key revenue drivers for each segment. Our interactive dashboard provides an overview of Thomson Reuters’ revenue growth, including historical revenue details for its key segments and a base forecast for 2018 and 2019. You can modify any of these forecasts to arrive at your own estimates for the company’s future revenues.
Thomson Reuters’ total revenue growth has not been especially high of late (around 2% and 4% in 2017 and 2018, respectively). Competitors S&P Global and Moody’s have been able to grow revenues by more than 5% during the same period. Prior to the Financial and Risk deal, Thomson Reuters was a much larger company than these two competitors. With the deal, the company is hoping to be more nimble and focusing on higher-growth areas. You can see comparative analysis of these companies in our dashboard How Does Thomson Reuters Compare With Its Peers?
The primary reason for the relatively low revenue growth for Thomson Reuters has been the stagnancy in the Financial and Risk business. Competitive pressures from players such as S&P Capital IQ and Bloomberg and legacy technology products have impacted the business’ revenue growth. Thomson Reuters has been spending significantly to maintain the existing technology and invest in new technology; however, despite this high spend, the business was not seeing a commensurate rate of growth. We expect that leaner operations will allow the company to focus on its key growth areas and boost its overall growth.
An Overview Of Thomson Reuters’ Operating Segments
Legal: The main customers of this division are legal, investigation, business and government professionals globally. Between 2016-2017 revenues of this division grew by less than 1%. In Q2 2018, the segment reported a 2% year-on-year increase in revenues, which is an improvement but still modest. Growth for the division is likely to be driven by product innovation, as well as potential acquisitions in the future. For instance, the company recently launched a new product called Westlaw Edge. This product, built on more than 100 years of attorney-edited annotations and powered by AI, should drive some longer-term growth for the business. Investing further in innovation could provide a further boost as well.
Tax and Accounting: This division provides integrated tax compliance and accounting information, software and services for professionals in accounting firms, corporations, law firms and government. Similar to the Legal division, the business is largely subscription-driven, so customer retention and acquisition is key to future growth. This division accounted for nearly 15% of the company’s total revenues in 2017. It is the fastest-growing segment for the company, registering nearly 7% growth in 2017 and a 4% year-on-year increase in revenues in Q2 2018.
Reuters and News: This is a relatively small segment, accounting for less than 5% of the company’s total revenues in 2017. The segment provides real-time news and information services to websites, newspapers and TV networks. Reuters has a reputation of being the fastest news network, giving it a competitive edge. Once the Financial and Risk deal is complete, Reuters news will enter into an arrangement with the new joint venture to sell its news for annual revenue of $325 million. This will provide a significant boost to the segment’s revenues, as its 2017 revenues were just $296 million.
With the Financial & Risk deal, Thomson Reuters should become a leaner, more focused business. This should allow the company to target specific opportunities and drive growth for its core segments. Selling a majority stake in a lower-growth division and using some of the proceeds to invest in growth should pay off over the long run.
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