An Embattled Data Provider... With an Empty 'War Chest'

Thomson Reuters (TRI) spent the past two years cleaning up its business...

Only for AI to threaten what remains.

While most people know the business for its news feed, Reuters, most of its money comes from data. It sells data, databases, and content generation to industries like legal and tax preparation.

Thomson Reuters sold its financial-data business to focus on data and content generation. It seemed like a smart move at the time... except now, those are two of the areas most at risk of disruption by AI.

CEO Steve Hasker wants it known that Thomson Reuters is finding ways to use AI. He doubled down earlier this year, claiming the company has an $8 billion "war chest" it can spend on this trend.

But investors aren't buying it. The stock is only up 5% this year. Most AI stocks are up double – if not triple – digits.

We're not so sure this company will be able to deliver on its promise, either...

To its credit, Thomson Reuters has spent about $2 billion on AI-related acquisitions...

In January 2023, it scooped up tax automation business SurePrep. Last August, it bought Casetext... which uses AI to automate legal research. This past January, it acquired a majority stake in Pagero, which automates invoicing.

Hasker also committed to spending $100 million building in-house AI tools.

These new additions are all well and good. But we're struggling to find where the next $8 billion will come from.

Thomson Reuters is already bogged down with costs. We can see this by looking at our Credit Cash Flow Prime ("CCFP") analysis...

The CCFP gives us a more accurate sense of a company's overall health. It compares financial obligations against cash position and expected cash earnings.

In the following chart, the stacked bars represent Thomson Reuters' obligations through 2030. This is what it needs to pay to keep the company from going under.

We compare these obligations with cash flow (the blue line) and cash on hand at the beginning of each period (the blue dots).

Take a look...

Thomson Reuters should have about $1 billion in spending money this year. But the company has about $1 billion in debt coming due next year... and it pays nearly $1 billion in annual dividends.

Starting in 2025, it's going to need to save all its cash just to pay its existing bills.

This doesn't look like a business with billions of dollars to spend on AI bets...

It looks like one that's barely keeping the lights on.

Thomson Reuters doesn't have much room to cut costs. It could slash its dividend to make more acquisitions... But investors wouldn't be too happy about that.

That means it'll likely have to rely on the acquisitions it has already made. And those haven't impressed the market so far.

Investors seem skeptical that Thomson Reuters can deliver on its AI promise. That's why it's underperforming other AI stocks... and will likely keep doing so.

Regards,

Rob Spivey
May 1, 2024