Thomson Reuters lifts outlook to 9.5% as AI legal tools win over law firms
Thomson Reuters now expects revenue to rise about 9.5 per cent this year, up from an earlier 8 per cent forecast, after third-quarter revenue climbed 10 per cent to US$1.83-billion and recurring contract revenue rose 9 per cent, the company said. The raised outlook follows the October 1 close of the sale of a majority stake in its global print business to KKR & Co. Inc.
Chief executive Steve Hasker said customers' use of the company's latest CoCounsel Legal software, which includes AI agents that can carry out complex tasks on their own, is "off to a very strong start." The product's active user base rose 60 per cent month over month in September, and those users are completing 2.4 times the amount of work compared with peak use of the previous version. "The intensity and duration of use has moved to an entirely different plane," Mr. Hasker said in an interview.
The results were not enough to lift the stock. Thomson Reuters earned US$339-million, or 78 US cents a share, in the quarter ended September 30, down from US$423-million, or 94 US cents a share, a year earlier. Adjusted earnings of 81 US cents a share fell just short of the 83 US cents analysts expected, and the shares fell 7.4 per cent to $157.83 by midday on the Toronto Stock Exchange. RBC Dominion Securities analyst Drew McReynolds called the quarter "largely neutral for the shares at current levels."
Competition from legal software startups and new tools from AI companies such as Anthropic has intensified, but Thomson Reuters is arguing that products trained on its proprietary data will be more accurate and trustworthy. Scotia Capital analyst Maher Yaghi said the results show "strong demand" for Westlaw and CoCounsel "with no evidence to date of a slowdown from AI-native entrants." In August the company deployed its own in-house model, Thomson LLM, built on a US$40-million budget, and on Tuesday announced a partnership with US law firm Skadden, Arps, Slate, Meagher & Flom LLP to build applications on top of it that Skadden would control.
Mr. Hasker expects law firms to spend more of their revenue on technology, AI and automation over the next five to 10 years and less on staffing and real estate, a shift he described as "a fundamental retooling of a law firm P&L" that could enlarge the market Thomson Reuters serves. He said the cheaper in-house model lets the company keep "all-you-can-eat pricing in most instances, versus usage-based pricing," which he called "problematic for private partnerships" such as law firms.