Thomson Reuters Earnings: Steady Revenue Growth Highlights the Firm’s Robust Businesses

Thomson Reuters TRI was mostly steady in the second quarter, as the firm’s recurring revenue model is holding up well. Organic revenue grew 5% with the firm’s three largest segments growing 7%. Overall, there was little in the firm’s earnings release that would alter our long-term view of the firm, and we will maintain our narrow moat rating and fair value estimate of $109 per share. While we acknowledge Thomson Reuters’ business has many positives, we view shares as pricey at current levels.

Legal Professionals, which comprises about 43% of the firm’s revenue, continued its mid-single-digit organic revenue growth trajectory we have seen in recent quarters with 6% growth. We note there have been some headlines about law firms starting layoffs and trimming staff. Thus far, these have not had an impact, but if this trend accelerates, it could prove to be a headwind to growth. The corporates segment (about 24% of firmwide revenue), grew 7%, which compares with 8% in the first quarter. Tax and accounting professionals’ revenue (14% of firmwide revenue) grew 11% organically, which compares with 10% in the first quarter. Overall, we believe these results highlight the steady nature of Thomson Reuters’ business.

Adjusted EBITDA margins increased to 40.1% from 34.7% because of expense control and expense timing. We estimate that timing-related items related to the SurePrep acquisition, marketing, and technology spending boosted margins by about 2 percentage points.

If there is one area of disappointment, it was the firm’s Reuters news business. Reuters news grew just 1% organically. Pricing growth related to its agreement with Refinitiv has slowed, the events business is seeing softness as firms cut discretionary spending, and digital advertising revenue was soft. We note that the Reuters news business is about 12% of the firm’s revenue and 6% of the firm’s adjusted EBITDA, so we don’t think investors should overly concentrate on this.