November 14, 2011

The Wall Street Journal

Financial-Data Suppliers Brace for Wall Street Cuts

Bloomberg LP's battle with Thomson Reuters Corp. is about to get bloodier.

A new wave of retrenchment on Wall Street is clouding the prospects for the two rivals, which dominate the market to supply traders, portfolio managers and other financial professionals with data, analytical tools and news. It is also testing the steps those companies took to diversify in the aftermath of the 2008 financial crisis.

The $23.7 billion global market for financial data is expected to grow only about 2% this year, according to market-data research and consulting firm Burton-Taylor International Consulting LLC, down from 4.2% growth last year.  While the market shrank slightly in 2009, it grew in the low double-digits from 2006 to 2008.

These businesses tend to ebb and flow with Wall Street employment.  The global finance industry is downsizing as firms brace for a prolonged slowdown due to weak growth, tighter regulations and instability in Europe.  Credit Suisse Group, UBS AG and Goldman Sachs Group Inc. are among the firms cutting significant numbers of jobs.

Brian Jacobsen, chief portfolio strategist at Wells Fargo Fund Management and a client of Bloomberg LP, FactSet and a few others, said his firm has cut its data expenses roughly in half over the past 18 months by limiting the number of users.  The firm hasn't cut ties with any one provider, he said.

Bloomberg so far has managed to sharply outperform the broader market.  It expects 2011 revenue to rise about 11% to $7.6 billion, Bloomberg Chief Executive Dan Doctoroff said.  Revenue rose 10% last year, when the company topped 300,000 subscribers to its Bloomberg Professional product, or "terminal," a bundle of financial data, tools and news that costs subscribers about $20,000 a year.

Thomson Reuters offers its comparable product for about the same price, though cost varies depending on features, the company said.

Bloomberg lifted its share of the overall market to 30.3% last year from 25.1% in 2005, estimates Burton-Taylor.  In contrast, Thomson Reuters's share slid to 33.2% last year from 37.4% in 2005. Thomson Reuters's stock is down about 20% year-to-date.

Competitors include News Corp.'s Dow Jones & Co., publisher of The Wall Street Journal, as well as companies such as FactSet Research Systems Inc.  Factset's stock is up nearly 5% year-to-date.

Mr. Doctoroff said Bloomberg in October began to feel the effects of Wall Street cutbacks after a relatively smooth first nine months of the year, but he said he believes the company will hit its goal of 15,000 net installations of Bloomberg Professional by year end due in part to increased emerging-markets sales.  Net installations were hovering around 13,300 through October.

Next year, though, "we see it being a bit more difficult environment," Mr. Doctoroff said.

Bloomberg executives said the company likely will slow hiring in 2012 after increasing the size of its work force by about 35% over the past three years.  "We feel like we need to give the organization a little more time to breathe," Mr. Doctoroff said.

Meanwhile, Thomson Reuters's financial-services business, which has a little more than 400,000 customers of various desktop products, increased revenue 5.5% to $5.64 billion in the year's first nine months.

The financial-services division, which accounts for just over half of Thomson Reuters's revenue, has stumbled amid the disappointing performance of Eikon, its new desktop offering for financial professionals.  The product now has about 8,000 active users a year after its launch, which it said was slower than expected. Executives said recently that a recent reorganization of the Markets division is likely to improve sales in 2012, though it won't drive revenue growth in Markets until 2013.

Chief Executive Tom Glocer said Eikon started slowly in part because the product wasn't ready for "every type of user at every institution."  An upgrade is pending. He also said Eikon was just one of several investments that overall have helped revenue in Markets edge up in the most recent quarter ended Sept. 30.

Meanwhile, the professional division, which serves the legal, tax and accounting industries, increased revenue by 10% to $3.93 billion during the first nine months.

Thomson Reuters, Mr. Glocer said, has recognized for a long time the trend toward "fewer bums on seats" in the financial-services sector and has shifted dollars to fast-growing areas such as governance risk and compliance, which helps financial institutions cope with growing regulatory burdens.

"I think we're well positioned even in a downturn because of the other weapons we have," Mr. Glocer said. Thomson Reuters spent about $850 million last year on acquisitions across its businesses.

Bloomberg, too, has pushed since 2008 to expand its customer base beyond traders, portfolio managers and other Wall Street professionals to include investment banks, private-equity firms, corporations and others "who look at the world from an industry lens," Mr. Doctoroff said.

Bloomberg has also worked to identify new products that could be offered separately from the terminal and sold to new customer bases.  It launched Bloomberg Law, a research tool for lawyers, and Bloomberg Government, a service that helps lobbyists and other Washington insiders analyze the impact of government policy on business.

With Bloomberg Law, Bloomberg moved into direct competition with Thomson Reuters's Westlaw legal service, a market leader.  Bloomberg recently agreed to acquire legal-research firm BNA in a $990 million deal aimed at bolstering its legal business.

Mr. Doctoroff said non-terminal revenue growth this year has been slightly lower than forecast, in part because the government product went to market later than planned.  "I think we were just a little too aggressive in some of the new-business targets," Mr. Doctoroff said. "Some things took a little bit longer to get off the ground."

Still, Bloomberg expects revenue from non-terminal businesses to rise 20% in 2011 to about $1.4 billion.
by Russell Adams