The Pros and Cons of Investing in Thomson Reuters Corporation

Thomson Reuters Corporation (TSX:TRI)(NYSE:TRI) finally seems to be on the right track, but many are still betting against the company. Is it worth your investment dollars?

| More on:
The Motley Fool

Investing in Thomson Reuters Corporation (TSX: TRI)(NYSE: TRI) has been a true roller coaster ride over the past few years. The steep drop came back in 2007 and 2008, when Thomson and Reuters merged right before the financial crisis. Then shareholders got tossed side to side when the company botched the release of its new financial product, Eikon.

Nowadays shareholders are starting to breathe easier, as Thomson is gaining traction with Eikon and is having some success cutting costs. But at the same time, there are still many investors (especially south of the border) who are betting against the company.

So should you hop on this ride? Below we take a look at two arguments for doing so, and two arguments for staying away.

Why buy?

1. Diversification of earnings

Over the last five years, Thomson has certainly struggled in some of its business lines. But we must maintain proper perspective.

When looking at the 2013 annual report, you can see things aren’t so bad. Many of the Financial & Risk segments are holding up well, as are the other divisions, including Legal. So even when one or more products suffers (as will surely happen again), there are plenty of healthy divisions to prop up the numbers, and the share price.

2. Subscription-based revenue

When Thomson botched the Eikon release, other competitors such as Bloomberg stepped in to take market share. But despite all of Thomson’s troubles, it only lost about five percentage points of share in its Financial & Risk division. Why was it able to hold on to so many of its customers? After all, BlackBerry Ltd made similar mistakes and saw its market share evaporate.

The reason is that Thomson sells subscription-based products, and these products can be a pain to switch away from. This is good news for shareholders, because it helps protect earnings even when the company falters.

Why to avoid

1. Poor track record

When you devote part of your life savings to a company’s shares, you want to be sure that management is up to the job. And Thomson’s management team has yet to demonstrate that.

This is a big problem, because this is an industry that requires constant innovation. And if Thomson botches any more product releases, its customers could lose patience. That would be bad news for the company’s shareholders.

2. Fierce competition

As mentioned, Bloomberg was one beneficiary of Thomson’s mishaps. Bloomberg is a company that competes fiercely, consistently comes out with top-notch products, and rarely loses. You don’t want to compete with this company.

There are other companies that compete with Thomson’s Financial & Risk division, such as Factset Research Systems Inc. and Capital IQ. These companies are not as powerful as Bloomberg, but are willing to offer lower-priced products. Over in Legal, Thomson competes with Reed Elsevier, which is another company known to offer steep discounts.

So Thomson is somewhat vulnerable to competition, something that will become much more apparent if the company falters again. So your best bet may be to stay on the sidelines.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair has no position in any stocks mentioned.

More on Investing

question marks written reminders tickets
Tech Stocks

Nvidia’s Historic Stock Split: Will Investors See Bigger Gains?

Nvidia's (NASDAQ:NVDA) record 10:1 stock split entices many investors in several important ways. But some myths aren't technically correct.

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog

Retirees: 2 TSX Dividend Stocks That Have Raised Payouts Annually for Decades

These stocks offer high yields and should continue to raise their payouts.

Read more »

TFSA and coins

5 Canadian Stocks With a Real Chance of Tripling Your TFSA’s Value

TFSA balances can triple in value with five Canadian stocks that have delivered outsized gains in recent years.

Read more »

A worker drinks out of a mug in an office.
Tech Stocks

Want $1 Million in Retirement? 3 Stocks to Buy Now and Hold for Decades

Growth stocks such as Docebo and Celsius Holdings should help you generate outsized gains in the upcoming decade.

Read more »

Hour glass and calendar concept for time slipping away for important appointment date, schedule and deadline
Dividend Stocks

This 8% Dividend Stock Pays Cash Every Month

Earn monthly cash of $154 with this 8% dividend stock.

Read more »

A miner down a mine shaft
Metals and Mining Stocks

Should Investors Buy the Correction in Lundin Mining Stock?

Lundin (TSX:LUN) stock has fallen by 10% in the last few weeks, but so has the price of copper. Coincidence?…

Read more »

Metals and Mining Stocks

Best Stocks to Buy in May 2024: TSX Materials Sector

A TSX materials sector ETF could help investors gain cheap diversified exposure to the hot sector's stocks – so will…

Read more »

man is enthralled with a movie in a theater

Should You Buy Cineplex While it’s Below $9?

With analysts expecting a significant recovery in the second half of 2024, is this the last chance to buy Cineplex…

Read more »