Wednesday, July 26, 2006

More from the Core: Reuters Removes Life Support and Moves Forward in Finance and Media

The tide appears to be turning at Reuters as Tom Glocer's Core Plus strategy seems to be ready to start returning on major investments in the midst of markets that favor their strengths. Reuters reports a likely 5 to 6 percent revenue growth rate based on constant currency adjustments. The details (PDF) reveal that operating profit from continuing operations is up 16 percent overall, with restructuring charges from the absorption of Telerate mostly complete and major infrastructure investments beginning to pay off. Reuters electronic trading products are benefiting from the expansion of private trading channels amongst financial institutions, while demands for exchange data are increasing as automated trading services and high-end analytics services grow in sophistication.

Having pared down the cost of delivering commoditized content and having pushed up investments in unique transaction-driven content and analytics Reuters is in a good position to challenge Bloomberg for more market share. The Bloomberg team is wrestling with a transition into a marketplace that is favoring all-purpose desktop services and commoditized back office solutions less and less. Reuters' greatest enemy - investment firm entropy - seems to be fading into the background for the next few years as major institutions accelerate the shift to more profitable private trading and try to discover new ways to package their own intellectual property for financial markets.

But the brightest story is in the growth of Reuters' media sales, where revenues grew 14 percent in 1H06 and are up 47 percent from 1H05. At GBP 87 million the media division is still a relatively small contributor to overall profits but with a top 300 Web site and a successful syndication strategy Reuters news is managing both strong profits and strong brand development. Reuters media products provide a great example of a well-managed channel strategy that balances its surging direct revenues with opportunities to extend the brand through broader search engine exposure via well-placed outlets. Investments in data mining are likely to pay off in more news beats for financial markets, which will be needed given the more aggressive stance of Thomson Financial in this area, but with a larger audience that includes both consumers and professionals Reuters has a broader revenue base through which to leverage such news investments.

The sun is still breaking through the clouds of iffy financial markets and an uncertain global economy, but these very factors may help to increase reliance on the global services of Reuters in the short run before people worry about any new belt-tightening that may be on the horizon. Reuters is emerging as a company that must be respected for sticking to its guns and developing a successful strategy for moving into a new world of business and media content which favors those who can move with the conversations of the markets to their most profitable contexts. No pain, no gain, they say; hopefully the worst of pain is behind Reuters now.
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