Thomson Reuters sales rose 10%. Its shares fell as AI costs squeezed margins

Sales rise, shares fall

Thomson Reuters reported a 10% rise in third-quarter revenue on November 3, but its shares fell as investors weighed the cost of building artificial intelligence into its legal and other professional tools. Revenue reached $1.83 billion for the three months through September, up from $1.66 billion a year earlier.ir +1

The shares were down 7% at $113.46 in Nasdaq trading, Reuters reported, citing investor concern about higher AI spending. That is an intraday reading, not a closing price. Adjusted earnings of 81 cents a share rose from 71 cents a year earlier but fell short of the 83 cents expected by analysts surveyed by FactSet.reuters +1

The cost of legal AI

The company's legal professionals unit, which includes Westlaw and CoCounsel, grew revenue 9% to $788 million. Its adjusted EBITDA margin—a measure of operating profitability—fell to 46.6% from 49% a year earlier. The company attributed the decline to higher technology and other costs; Reuters reported that AI spending, $22 million in severance costs and the purchase of analytics platform Noetica weighed on the margin.ir +1

That spending comes amid competition for lawyers' technology budgets. The Financial Times reported earlier this year that established providers were upgrading their offerings as AI startups and general-purpose model developers moved into legal work. In September, legal AI startup Harvey raised $550 million at a $15.5 billion valuation.ft +1

Profit and the print sale

Net earnings, including discontinued operations, fell to $339 million from $423 million. The earlier quarter benefited from a gain on the sale of Thomson Reuters' remaining stake in legal financial-management business Elite; higher software amortization also weighed on operating profit this year.yahoo +1

The company sold a 51% stake in its global print business on October 1 for approximately $500 million, retaining 49% in a joint venture now called Westbridge Print. It presented print as a discontinued operation in the quarterly results and revised the comparison period accordingly.ir +1

A forecast on a new basis

Thomson Reuters now expects full-year organic revenue growth of 8.5% to 9%, compared with about 8% in its August outlook. The figures are not directly comparable: the new outlook excludes Global Print, while the earlier forecast included it. Its guidance for the combined legal, corporate, and tax and accounting segments was unchanged.ir

The company expects fourth-quarter organic revenue growth of approximately 8% and an adjusted EBITDA margin of approximately 42%. Executives told Reuters they expect premium pricing for AI products to help offset legal AI spending; whether it does so remains to be seen.ir +1