Thomson Reuters: Stock of the Week

Want to make a bet the news business will survive? Consider this first.

Andrew Willis 11 December, 2023 | 4:49AM
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Key Takeaways for Thomson Reuters Stock:

  • Thomson Reuters benefits from a strong brand in Reuters news, but its core business is now in legal, tax and accounting software.
  • Modern-day news functions at Thomson Reuters are low-margin, however, they can generate value in other businesses. For example, a team of accounting experts is currently integrating timely editorial news with an AI-enabled search product.
  • Legal, tax, and accounting software offerings have captured their respective markets, but we currently see Thomson Reuters stock as overvalued. The market may already appreciate its dominance, and competition from cloud providers is on the horizon. 

 

Andrew Willis: If you ask someone who’s not a lawyer or an accountant what Reuters does, they’re likely to say news. But what was a wire service is now more of a legal and tax information provider - with a side of news.

After the internet swept through the media sphere, the profit structure of the news business has gotten complicated. The good news is it isn’t doomed, but certainly less direct. Currently, the news business at Thomson Reuters TRI has low to mid-single-digit margins and the product has become commoditized, but that’s in isolation.

What happens when you own software platforms preferred by experts across entire industries? Perhaps you’ll find you can distribute some timely editorial content. And it will have your brand on it, as a bonus. And how does your reputable news business brand affect the perceptions of clients in other segments?

Media Stocks Are Increasingly Integrated

This may be the new reality for the news business. Meaningful editorial integration to help other products stand out. And stand out they do at Thomson Reuters in the law, tax and accounting space. Their Westlaw legal business, for example, is very popular and supported by a team of 100 lawyers who have been curating a legal database for decades. Between the legal and tax software, Thomson Reuters is in virtually all of the top 100 legal and accounting firms in some capacity.  

Equity analyst Rajiv Bhatia says that the legal business looks to be the crown jewel at Thomson Reuters, along with tax and accounting offerings, rather than the news business. Meanwhile, you could argue the best crowns have more than just a few gems.

For Morningstar, I’m Andrew Willis.

 

bulls Thomson Reuters Bulls Say

  • A renewed focus and new management following the Refinitiv divestment could see margins improve, driving profitability.
  • Increasing regulatory complexity and requirements for a library of previous years of regulations increase barriers to entry, reduce competition, and strengthen advantages in the legal and tax and accounting segments.
  • The firm's legal segment pricing power has been modest despite high market share and thus could potentially be higher.

bears Thomson Reuters Bears Say

  • Since divesting Refinitiv and instituting its expense reduction programs, the firm's valuation has risen, which could limit upside given that the firm's efforts are already appreciated by the market.
  • An accelerated decline in the global print business could cause the firm to miss organic revenue growth and profit targets.
  • Customer attrition associated with a pivot from on-premises software to the public cloud could hurt Reuters' market share and growth in moaty legal and tax and accounting segments.

 

Editor's Note: All images are courtesy of Unsplash.com and AP Images. 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Thomson Reuters Corp225.75 CAD-0.74Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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