Microsoft Technology to Enhance London Stock Exchange's Pursuit of Data Supremacy

The London Stock Exchange (LSEG) is down 0.81%.

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Group PLC has made a big bet on financial data. Its new deal with Microsoft Corp. MSFT -2.55% shows that the company is banking on this area for its future growth.
This poses a bigger threat to industry leader Bloomberg LP, analysts say.

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Last week, the London Stock Exchange Group (LSEG) announced that it would be spending $2.8 billion on Microsoft products over the next decade. The majority of this spending will be on Microsoft's cloud service. As part of the deal, Microsoft will take a 4% equity stake in LSEG. Microsoft will be buying stock from some of the company's major existing shareholders.

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LSEG is one of the largest exchange operators in Europe, based on the market value of its own shares. While it runs well-known exchanges in London and Milan, nowadays much of its focus is on financial data. The company has a large amount of data, thanks to the trades its platforms handle and its purchase of Refinitiv Holdings Ltd. The purchase of Refinitiv Holdings Ltd. has given the company access to financial information and terminals.
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Refinitiv is one of the leading providers of financial data to investors, corporations and other clients. Bloomberg is one of its main competitors, along with Dow Jones & Co., the parent company of The Wall Street Journal. Microsoft has the Azure cloud-computing platform, Teams conferencing software and other technology.

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The combination of LSEG's data and Microsoft's technology represents the biggest threat yet to Bloomberg's financial data business, according to Robert Iati, managing director of research firm Burton-Taylor International Consulting. Bloomberg's competitors in this space include LSEG's Refinitiv unit and FactSet Research Systems Inc. Bloomberg did not respond to requests for comment. Companies have long tried to compete with Bloomberg's terminal business, but have had little success. This is largely because users find it difficult to communicate while using real-time data, according to Mr. Iati.

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"Everybody wants to get Bloomberg," he said. "One of the primary reasons that the Bloomberg terminal is so popular is its communication," he said, pointing to the terminal's instant-messaging feature. If the London Stock Exchange (LSE) integrated Teams into the Refinitiv platform, it could change the way things are currently done, according to Mr. Iati. He believes that this would be a good move for the LSE.

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Refinitiv's shift to the cloud will save on data-storage costs and make data more readily available outside the office, according to LSEG leaders and others.
According to Michael Werner, a UBS analyst, cloud computing makes it easier to be flexible in how much data and processing power you demand, since you can simply call up the provider (such as Microsoft) and they will already have the capacity you need.

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"If this collaboration is successful, we will see increasing market share and better pricing power," Mr. Werner said. However, he added that investors remain skeptical and any benefits could take years to materialize. Anna Manz, LSEG's chief financial officer, said that Microsoft's technology, including machine learning and cloud computing, will make financial models that use LSEG's data more accurate.

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According to Ms. Manz, incorporating teams will speed up financial trades and enhance communication between advisers and their clients. She believes that this will make the tool much more valuable than a portal that simply contains data and analytics. Since fall 2021, at least three major exchanges have reached deals with major tech companies to move to cloud computing. These include CME Group Inc. and Nasdaq Inc.

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This deal comes at a crucial time for the London Stock Exchange and the city as a financial hub. IPOs have declined significantly since the pandemic began, and London is facing increasing competition from Amsterdam, Paris and other cities as Europe's largest financial center after Britain's exit from the EU. The LSE is hoping to persuade Softbank Corp.'s Arm Ltd., Britain's largest tech company, to list on the London exchange instead of the Nasdaq.

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LSEG has been working to expand its business for years, diversifying its revenue sources away from traditional sources like trading and listing fees, and into areas like data subscriptions. This shift is attractive to investors, who value predictable revenue streams more highly than volatile ones.
The purchase of Refinitiv represented a significant change for LSEG. Three years ago, most of the company's revenue came from traditional sources. Today, nearly three-quarters of its revenue comes from subscriptions, primarily from fees paid by clients for data. "UBS's Mr. Werner stated that the exchange business is now a data business."

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LSEG's stock has performed slightly better than the benchmark FTSE 100 index this year, with a year-to-date return of 3.7%.