Thomson Reuters shares fall 7% to $113.46 amid concerns over AI costs
Key Facts
Thomson Reuters shares fell 7% to $113.46 in Nasdaq trading on November 3, after third-quarter results showed revenue growth alongside declines in operating profit and net earnings, as investors worried about the effect of rising artificial intelligence spending on profit margins. Reuters reported that some investors had expressed concerns about higher spending. The company posted revenue of $1.833 billion for the three months ended September 30, up 10% from $1.658 billion a year earlier. But revenue came in below the average analyst estimate of $1.84 billion, according to Dow Jones. Operating profit also fell 22% to $402 million, while net earnings declined to $339 million from $423 million in the same period a year earlier.
On an organic growth basis, revenue rose 10% for the company as a whole, and each of its three main segments posted the same rate. Those segments serve legal professionals, businesses, and tax, audit and accounting professionals. Adjusted EBITDA rose 10% to $651 million. But its margin declined to 35.5% from 35.8%, a decrease of 30 basis points. The figures show a divergence between continued growth in the core business and declines in some profitability measures.
Results in the legal segment came under pressure from AI spending, severance costs and the impact of the acquisition of data and analytics platform Noetica. Reuters reported that the segment's margin fell to 46.6% from 49% in the third quarter of last year, and that severance costs totaled $22 million. Meanwhile, revenue grew in the company's legal, tax, accounting and corporate segments, supported by recurring revenue and new AI upgrades, Reuters reported. Reuters' revenue rose 12%, with news transaction revenue climbing 56% to $44 million. Reuters attributed the growth to higher generative AI-related licensing revenue.
Chief Executive Steve Hasker said third-quarter revenue and margin growth were “better than our previous expectations,” and described customer engagement with the next generation of CoCounsel Legal as encouraging. Reuters reported that the chief financial officer said generative AI was associated with about 34% of the core value of contracts in the third quarter, up from 32% in the second quarter and 24% a year earlier. At the same time, cash provided by operating activities fell $105 million year over year, and free cash flow declined $118 million. The company attributed the decline in free cash flow mainly to lower operating cash flows and higher capital expenditures. According to Reuters, the stock had fallen more than 14% since the start of 2026 through November 3, while the S&P 500 rose 10%.
The company raised its 2026 guidance, excluding its Global Print business, to total revenue growth of about 9.5%, organic growth of 8.5% to 9.0%, and an adjusted EBITDA margin of about 39%. It left growth and margin guidance for its three main segments unchanged. Thomson Reuters completed the sale of a 51% stake in its Global Print business on October 1 to capital accounts advised by KKR, for gross proceeds of about $500 million. Despite raising its guidance, Reuters reported that an analyst at Huber Research said investors had been waiting for steady margin improvement beginning in 2027 and beyond. The company had scheduled a webcast discussion of its third-quarter results and full-year outlook for November 3 at 8:30 a.m. U.S. Eastern time.