Reuters: Dodging Bullets On All Fronts
From the windows of his 29th-floor aerie above Manhattan's East Side, Michael Sanderson has a sweeping view of New York's suburbs in the glow of a fall sunset. But the chief executive of Reuters America Holdings Inc. tends to keep his eyes on the opposite wall. There, seven giant Reuters screens flash stock prices, currency rates, and live video of U.S. Treasury Secretary Robert E. Rubin. If Sanderson gets his way, thousands of such screens will be beaming out Reuters data across the U.S. in a few years' time.
But just as Reuters is gearing up for a big U.S. push, it faces slower growth and growing competition in some of its strongholds. By far the biggest player in the nearly $6 billion global electronic financial-data market, Reuters is under pressure on many fronts. No.2 Bloomberg, Bridge Information Systems, and Dow Jones Markets are all scrambling for more market share. "Reuters is in a difficult position," says John Jessop, managing director for Europe at Bridge and a former Reuters executive. "Like any company as big as they are, they are under constant attack."
Revenues for the first three quarters of 1997 were down 2% from last year, to $3.4 billion. Reuters says they would have been up 8% if the British pound hadn't appreciated, but even that would have been a big decline from increases of up to 23% it enjoyed just a few years ago. So shareholders worry that Reuters' glory days may be over. The stock has been volatile, and at about $10, it's 14% below the year-ago price. Investors are also miffed at Reuters' failure to put its $2 billion cash pile to productive use. "Throwing off cash is a classic sign of a mature business," says Nick Ward, a Credit Lyonnais Laing analyst in London.
Many companies, of course, would love to have Reuters' problems. A plan to distribute $1 billion to shareholders was nixed by Britain last year. These restrictions could be eased, but in the meantime, Reuters is buying back $340 million of stock. It keeps piling up cash even as it pumps roughly $700 million a year into research and development and system upgrades. Brian D. Newman, an analyst at Henderson Crosthwaite Institutional Brokers Ltd. in London, thinks Reuters' conservatism is a virtue and that results will improve in a year or two, once the upgrade of its screens is completed. "They have not been tempted by corporate megalomania to rush off and diversify," he says.
NEW SCREENS. But gaps in Reuters' strategy could come back to haunt it. The company badly trails in the U.S., the world's biggest and hottest screen market. Although its highly successful Instinet pioneered electronic stock transactions, Reuters wasn't nearly aggressive enough in selling to the booming U.S. mutual-fund industry. Sales to money managers were a big reason American rival Bloomberg grew 29% in 1996, compared with Reuters' 8%.
Reuters executives realize the unsatisfactory U.S. showing is dangerous. For one thing, many of its key clients are headquartered in the U.S. The perception that the London-based company is an also-ran would affect everything from systems purchases to Reuters' stock price. "If we don't keep up with all the important sectors in the U.S. market," says Reuters Holdings CEO Peter Job, "our world competitiveness can't be regarded as secure."
On Oct. 31, Reuters announced plans to build a 32-story U.S. headquarters in Manhattan's Times Square that will be the command post for a full-scale effort to correct Reuters' American shortcomings. Globally, the company is rolling out a new data system, called Reuters 3000, to replace the Reuters 2000 screens that most clients now use. The 3000 offers a wide range of data and analytical systems to compete with Bloomberg. Reuters hopes to have close to 30,000 of the new screens in place worldwide by yearend. Variants of the 3000 will hit the U.S. next March, featuring sophisticated coverage of U.S. equities and fixed-income securities--the two areas where Reuters' deficiencies are most glaring.
But whether the 3000 will make a big difference in Reuters' fortunes is still an open question. Bloomberg users are wedded to their systems, which act as a global network, and will be reluctant to switch.
DAMAGING MOVE. The 3000, which costs $800-to-$1,200 per month per user vs. Bloomberg's average of $1,300, is definitely an improvement. But Bloomberg and other suppliers are likely to defend their U.S. position with price cuts and improvements of their own. So Reuters is likely to have a tough slog expanding profitably in America. Last year its U.S. data operations made only $29 million in profits on $748 million in revenues, excluding Instinet.
Competition has come from clients, too. The most damaging move has been the sponsorship by a consortium of international banks of an electronic foreign-exchange-dealing system called the EBS Partnership, which began trading in 1993. EBS, whose 15 owners include Citibank, Chase Manhattan Corp., and the three big Swiss banks, has made big strides in the $1.5 trillion-a-day foreign exchange market--a business Reuters hoped to dominate.
But both Job and Sanderson expect demand for information systems to grow as the financial-services industry consolidates. They think the need to design more customized services for bigger clients is bound to work in Reuters' favor--because it has the money to invest. "All I have to do is make sure Reuters will be there at the end," says Job. That much looks like a safe bet. Whether it can stay atop the cutthroat financial-data business is a longer shot.