Thomson Reuters Corp. TRI-T reported higher third-quarter revenue and kept its annual guidance steady even as inflation is starting to push the company’s costs higher, which could squeeze profit margins over the coming year.
The information and news provider’s three main business lines serving legal, tax and accounting as well as corporate clients, all posted higher revenue in the quarter that ended Sept. 30.
Revenue rose 3 per cent to US$1.57-billion, and was up 5 per cent after adjusting for the effects of currency fluctuations. Recurring revenues - the subscription-based fees that make up a large majority of the company’s revenue - were up 7 per cent. That was emblematic of the stability the company’s revenues have shown through more than two years of global economic upheaval, as most clients are locked in to contracts and there are a limited number of competitors for the same products and services.
With high inflation, rising interest rates and geopolitical upheaval starting to slow economic growth, however, some corporate clients are starting to look harder at the costs of their software contracts.
“We’re pretty optimistic on the revenue front as we head into 2023,” said chief executive officer Steve Hasker, in an interview. “I think where we’re cautious is in corporates, we see some software purchase decisions being put through an extra hurdle or two.”
Mr. Hasker said the company is also closely watching ad revenue from its Reuters News business, as well as revenues from events, one-time transactions and print products, which are “a little bit less bolted down” than income from its core subscription-based products.
Operating expenses decreased 3 per cent at Thomson Reuters, compared with a year ago, as the company continues to work through a two-year change program that will ultimately strip out costs while increasing the company’s focus on new technologies. But Mr. Hasker said the inflationary environment is pushing up labour costs, especially for engineering and technology skills, as well as the prices charged by the company’s vendors.
“We see it everywhere,” he said. “We see it in our input prices, everything from paper, through our print facility, all the way through to software renewals to run our front and back offices. ... I can’t think of a single category where our vendors aren’t asking for price increases.”
Over time, Thomson Reuters also has an opportunity to raise prices in step with inflationary trends, and the company has made some price increases this year. But there is a lag before those increases take effect across the board as multi-year contracts with many clients gradually come due for renewal.
In the third quarter, Thomson Reuters reported profit of US$228-million, or 47 US cents per share, compared with a loss of US$240-million, or a loss of 49 US cents per share, in the same period last year.
“It was another solid quarter,” said Aravinda Galappatthige, an analyst at Canaccord Genuity Group Inc., in a note to clients.
Woodbridge Co. Ltd., the Thomson family holding company and controlling shareholder of Thomson Reuters, also owns The Globe and Mail.
Thomson Reuters kept its guidance for 2022 and 2023 unchanged, after six straight quarters in which it had increased some aspect of its targets. And the company has bought back US$855-million of shares through October 28 as part of a US$2-billion repurchase program announced in June.
The company’s leaders continue to hunt for acquisitions, as falling valuations for many technology companies make have made the math on deals “much friendlier to an acquirer,” Mr. Hasker said. In January, the company will be able to sell part of its US$6.3-billion stake in the London Stock Exchange Group (LSEG), which will give it added financial firepower.
The Reuters News division is also “moving methodically toward testing a paywall,” Mr. Hasker said, after Paul Bascobert was named president of Reuters in September. A previous attempt by the company to a website paywall was postponed last year after a dispute with financial data provider Refinitiv, which has since been acquired by LSEG, over the terms of an agreement to supply news.
The revamped paywall is likely to launch next year. “I’d put pretty modest growth expectations against that,” Mr. Hasker said, “but it does represent a pretty exciting step forward for the company.”
James Bradshaw