It’s earnings season, and many Canadians likely have their eyes on the performers on the day. Companies such as the Big Six banks have been dishing out earnings this week, but there’s one that has climbed steadily and has yet to come back down.
That stock is Thomson Reuters (TSX: TRI), with shares climbing 15% after its earnings this month. And the stock has yet to come down! So, let’s look at what investors need to know after earnings and if now is a good time to invest.
What happened?
First, let’s go over the earnings themselves. TRI stock reported exceptional first-quarter results, reporting an 8% increase in revenue, reaching US$1.89 billion, with a notable 9% growth from its major segments (legal, corporate, tax, and accounting).
It was a strong start to the year, which led the company to slightly raise its annual revenue-growth expectations to 7%. In fact, according to one analyst, it was the strongest earnings seen by the company for some time. Shares then rose by 15% following the earnings announcement.
The better-than-expected revenue growth and profits provided a solid foundation for investor confidence. And what’s more, the company went on to increase its dividend by a whopping 10%! Yet, there was even more growth outlined by the company as a potential revenue source.
Generative AI
Significant revenue was derived from highly profitable licensing deals for Reuters content with artificial intelligence (AI) companies. This boosted growth in the Corporate and Tax segments. Thomson Reuters’s new AI-based products, including the legal assistant CoCounsel powered by OpenAI’s ChatGPT, received positive client feedback.
Furthermore, the company plans to invest at least US$100 million annually in AI development. This indicates a long-term commitment to integrating AI into its offerings. The Reuters News division saw a 21% increase in revenue, largely due to one-time licensing deals with AI companies.
The continued customer uptake of AI offerings is expected to accelerate in the latter half of 2024 and into 2025. What’s more, price increases, high customer retention (91%), and potential new merger and acquisition opportunities are anticipated to support sustained revenue growth.
What to watch?
Of course, analysts had a few notes of caution to go along with the strong results. In particular, despite the strong performance, some analysts remain cautious due to high valuations. For example, one analyst noted the stock’s high valuation relative to other AI software peers like Microsoft.
Overall, the big key will be watching the development of generative AI in the future — especially considering that most analysts indeed revised their price targets upwards after the strong quarter.
Investors should, therefore, consider the company’s continued investment in AI, the potential for further revenue growth from new products, and strategic acquisitions as key factors supporting the bullish outlook on TRI stock. Yet, with shares now up 40% in the last year and a 1.24% dividend yield, it’s looking very attractive for investors today.
