Telerate Revenues Grow Slow Again -- Especially In U.S.

Dow Jones & Co.'s revenue report for the second quarter confirms analysts' earlier predictions that the strong, double-digit growth rates Dow Jones Telerate enjoyed in 1994 were destined to fall off. For the second three-month period in a row, the vendor's financial information services segment has shown a slower growth rate than in the quarter immediately preceding.

As Telerate's revenue growth rate reached a high of nearly 17 percent in the fourth quarter of 1994 (IMD, Feb. 13), analysts concluded that the year's strong performance would be a tough act to follow. That has clearly turned out to be the case: In the second quarter of this year, Telerate's segment grew only 8 percent (ex currency fluctuations) compared to the same period the year before. In the first quarter, it grew only 10 percent (ex currency fluctuations) (IMD, April 24).

At a meeting held by Dow Jones officials for analysts last week, Telerate officials pointed out that the fall-off in the most recent quarter's growth is attributable to the very strong second quarter recorded in 1994. However, since the third and fourth quarter of 1994 were even better than the second, the officials' statements appear to lay the groundwork for more lackluster revenue numbers as 1995 grinds on.

The sluggishness had a particular impact on Telerate's U.S. sales. Domestic revenues grew only 5 percent for the quarter, compared to 7.7 percent in the first quarter, according to the company's 10Q report. Revenues from international operations grew 16 percent for the quarter, down from 17 percent in the first quarter.

At the analysts' meeting, vendor officials did concede that there had been some weakening in the U.S. for the quarter, and suggested that the drop was due to weaker demand because of securities-industry consolidation, according to those in attendance. The shrinkage of various U.S. firms' bond operations -- and the outright disappearance of a few big players -- over the past year or so has had an effect on Telerate's customer base, the officials indicated.

Meanwhile, the vendor's big initiative, the Telerate Workstation, which was introduced early this year (IMD, Jan. 30), has not yet established enough of presence to have an impact on the vendor's revenues, according to Eric Philo, an analyst with Goldman Sachs & Co. Indeed, says Philo, the launch of the workstation probably has had more of an adverse impact thus far -- given the expense associated with promoting the product and rolling it out.

At the analysts' meeting, Dow Jones officials said that the vendor would be introducing a Windows 95 version of the TW, but did not say when it would be available.

Meanwhile, the TW's ability to emerge as a big winner for Telerate was further clouded by the fact that the TW sells for five percent to 15 percent more than the products it's meant to replace, according to what Telerate told analysts at the meeting.

Michael Ellmann, an analyst with Wertheim Schroder & Co., says the pricing decision reflects a strategic approach that's different from those of Reuters and Bloomberg L.P. Ellmann says that the marketplace is primed to benefit from "from declining telecommunications costs and computing costs" -- which has led Bloomberg and Reuters "to take the view that they're going to improve service and not raise the price." In contrast, says Ellmann, "Telerate sought to try to get incremental revenue in return for increased performance and functionality of the system. That's a different way to play the game -- not a way to play the game, I think, that is sustainable if you've got Reuters and Bloomberg doing it the other way."

On the upside, Dow Jones Telerate is doing well in less developed areas of the world, including India, Eastern Europe, Vietnam and the Middle East, officials told analysts. Customers in those regions, who for the most part have been subscribers to Reuters' services only, have now begun to add secondary sources -- specifically, Telerate's -- as well. Telerate's strategy for some time has been to approach Reuters' clients and tell them they should not be relying on one vendor alone, Philo says.

According to Dow Jones' quarterly report, the financial information services segment hauled in $240 million in revenues, compared with $216 million for the same period in 1994. The segment comprises sales of Dow Jones Telerate, as well as of Dow Jones Financial News Services.

Telerate's rate of operating income growth also slowed. Profitability grew 4.8 percent for the quarter, compared with 10 percent in the first quarter. But Ellmann says Dow Jones officials expect cost pressures to abate in the second half, "so that income growth will be more robust."

Dow Jones' business publishing segment, which includes the results of the company's print publications, television operations and Business Information Services group, posted second quarter revenues of $265 million, a 9.2 percent increase over the same year-ago period, while operating income dipped 32.8 percent, as the segment continued to bear increased newsprint and television-related costs.