Pearson needs some patience to perform
ONCE upon a time, Pearson owned the Financial Times and The Economist.
However, more recently the former print giant has made a bid for a dominant position in the emerging digital education space.
It’s a potentially lucrative business, with attractive subscription revenues providing a stable and reliable income.
Trophy assets have been sold to help fund the transition, and the remaining business is focused on courseware and testing, particularly in North America. Unfortunately it has not been a smooth journey.
Physical textbooks are still a significant contributor to revenues, but sales have slid dramatically as students move to digital alternatives faster than expected.
There are better noises coming from businesses outside the US. But while the pivot to digital is gathering pace, it’s not yet enough to offset the declines in physical courseware.
The battle for digital student dollars is also competitive, and Pearson seems to be losing ground to traditional rivals as well as new free-to-use online content. A potential bright spot is that, in the past, economic downturns have tended to lead to spikes in demand for courseware.
The recently unemployed look to upskill themselves, and university student numbers boom. With global economic conditions looking fragile, Pearson will be hoping we see a similar boost this time round – although increased focus on vocational qualifications means it is not guaranteed.
Overall, we remain cautious where Pearson is concerned. The group’s transformation has been far more painful than management expected and isn’t yet complete, neither of which seems to be adequately reflected in the rating.
A dividend yield of 2.5 per cent means investors are hardly being rewarded for their patience either.
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