Friday, February 18, 2005

Reed Elsevier's 2004 Highlights and a Look Ahead

Reed Elsevier reported "the best set of results we have ever seen from the company", according to Lorna Tilbian from Numis Securities as reported by Bloomberg. Despite the positive growth in each of their four market groups, profit for the year fell 9.3 % primarily because of the weak dollar. However, analysts and investors were sufficiently impressed by the 2004 performance and outlook for 2005 to help spur a spike in the stock price, which made the weekly stock price chart for this week look like the proverbial hockey stick.

A few highlights and comments on the future direction of Reed Elsevier gleaned from the reported results and analyst call yesterday:

International: Expect continued expansion into China and other Asian countries for two obvious reasons: growing demand for business, legal, and scientific information in the region (China in particular) and because of the weak dollar, which makes US sales less attractive. Case in point: Reed Business launched 10 new magazines in China in 2004.

New Product Introductions and Enhancements: Look for continued investment in product development to help transform Reed Elsevier content into applications that incorporate must-have content into the daily routine of targeted professionals in the medical, legal, and engineering fields. Elsevier's MDL and LexisNexis' risk management tools are two representative examples.

Acquisitions: Growth in the LexisNexis legal and Harcourt education markets were supported by the Seisent and Saxon acquisitions. Sir Crispin Davis, Reed Elsevier's CEO, used the example of Applied Discovery's 100% year-to-year sales growth to underscore how acquisitions can be leveraged with RE's sizeable sales force, brand strength, and other infrastructure assets. Expect more acquisitions that focus on technology-driven applications in Reed's legal and medical markets.

Online Advertising: Reed Business continues to solidify its relationship with Google with the AdSense for Search program, which has been very successfully implemented on Kellysearch.com. One can imagine an expansion of Adsense for Search into other Reed Business, LexisNexis properties, and even Elsevier publications in the future.

Along with growth through new products and acquisitions, Reed Elsevier's core scholarly journals and LexisNexis database publishing businesses are benefiting from an improvement in academic library budgets and spending on corporate and business information, respectively.

Reed Elsevier management is smart to focus on getting closer to their customers by investing in application platforms that provide productivity tools to their ultimate customers. But, they are smarter still for not taking their eye off of their core asset: quality information that can be leveraged in multiple ways. It is the combination of quality information and tools for using the information to enhance productivity (vContent) that will entice customers to open their wallets to content-intensive products and services.
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