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2HRS2GO: Reuters faces tough road online

    So the world's most prominent news agency has finally articulated an Internet strategy the market likes.

    American depositary receipts of Reuters (Nasdaq: RTRSY) this morning gained more than a fifth from yesterday's close as the company released preliminary year-end results for 1999 and more important, at least as far as the U.S. stock market is concerned, Internet goals.



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    Reuters has talked big about the Internet before -- as early as 1996, the words "Embracing the Net" emblazoned the cover of at least one report from the company. But for the most part, the company's words were nothing more than that; until today, Reuters had never even webcast an analyst meeting.

    Chairman Christopher Hogg spent a seemingly interminable chunk of this morning's call alternating between now-tired reiterations of the need for fast, real-time service on the Internet and repeated assertions about the ability of Reuters to carve a strong business out of it. "I'm sorry it took so long, but it needed explaining," Hogg said.

    No, it didn't. Nowadays, anyone interested in an information company -- particularly a financial data provider -- probably doesn't require a primer on Internet business dynamics.

    I suppose Sir Christopher had to create a context for the company's massive spending plans. Over the next four years, Reuters expects to spend $800 million to turn itself into an Internet company. Four years is an eternity online, but considering this is a traditional information provider we're talking about, the timeline shouldn't come as much of a surprise. At least they're planning to complete it within a decade.

    Amid the dry news release, the 48-page PDF summary and the droning analyst meeting, two items grabbed the market's attention, and both involved the acronym "IPO".

    Reuters plans to offer shares of its Greenhouse Venture Fund sometime this year. You can't accurately judge the value the business from the outside, since much of its portfolio is privately held, but nothing jumps out about Greenhouse. It's certainly hard to see how it might prove to be different, comparable or superior to a CMGi (Nasdaq: CMGI), Internet Capital Group (Nasdaq: ICGE) or another incubator.

    The other noteworthy tidbit comes from Instinet. Reuters is considering an IPO for the electronic market maker, best known for its afterhours activity, though it also handles plenty of traffic during regular market sessions.

    Just the name Instinet will attract stock buyers' attention, but the business itself doesn't seem great, at least from a financial viewpoint. Trading margins kept dropping last year, resulting in a 17 percent drop in Instinet's profit to $207 million from $250 million, even though revenue rose 18 percent, to $846 million from $718 million. Not an attractive combination.

    Reuters believes the Internet will revitalize all its businesses, including Instinet. Company executives expect "basic information" will remain free on the Internet, but hope Reuters can do well by offering other services around it. Today's announcement of a partnership with online research vendor Multex (Nasdaq: MLTX) stands as an example.

    Forgive me for being skeptical about the main provider of wire news to many popular websites, including ZDNet. But Reuters might be at least two years too late in bringing its considerable weight to bear on the Internet.

    Granted, Reuters stories remain among the most widely read financial news online, but there are other sources also, with more arriving online every day. Heck, nowadays the market seems to put at least as much faith in PR Newswire and Business Wire, which makes the flak people happy but doesn't do much to add value to Reuters data.

    On the direct competitive front, terminal rival Bloomberg News is at least as far along as Reuters when it comes to the Internet. Pure website operators such as TheStreet.com (which I wouldn't consider a direct rival for Reuters, but still sort of in the same niche) are farther down the road.

    During this morning's call, company executives made much of Reuters' ability to offer a "complete" package of news, data, and graphics. I wonder if your average online consumer of financial news isn't savvy enough to get all that already through a conglomeration of websites bookmarked on the browser.

    Announcing at least one IPO and likely a second has investors excited for the moment. But a look at the larger company yields the picture of an organization whose revenue grew a measly 3 percent last year.

    Will the Internet give that rate a jolt? Seems more like a survival tactic than a major growth driver. But perhaps staying alive in the face of the biggest communications revolution of the last 100 years is worth a 20 percent bump today.

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