Pearson shares slide despite rise in revenue

Pearson’s share price slid on Friday despite the company announcing it was on course to meet its targets, as growth in virtual learning and workforce training were offset by a pandemic hit to higher education.

The educational publisher’s stock fell more than 12 per cent on Friday after it released a trading update.

While it reported a 10 per cent rise in underlying revenue in the first three quarters of the year, higher education income fell as a Covid-19 surge and the draw of a strong US labour market dented student enrolments at community colleges in the US.

The fall comes as a blow for what Pearson hoped would be a revival year, following the launch of a direct-to-consumer subscription service aimed at building relationships with end users rather than colleges.

Pearson+, which charges $14.99 a month for access to all Pearson textbooks, had more than 2m registered users by the third quarter, the company said, and more than 100,000 paying subscribers.

Chief executive Andy Bird, a former Disney chair who was appointed last year, said the user numbers were “impressive” and that while revenue was currently modest the platform was a route to build relationships with customers, laying the ground for sales in other divisions such as workforce training.

“We may have started in the US higher ed and in textbooks but that is by no means the limit of our ambition for Pearson+,” he said.

However investors were unimpressed at the relatively low number of paying users, or concerned the majority of the 1.9m other users had signed up through bundles included in existing subscription services, according to analysts.

Some observers are also unconvinced that college enrolments will recover, despite US government intervention to boost numbers.

Sophie Lund-Yates, an equities analyst at Hargreaves Lansdown, said that while ideas like Pearson+ “had merit” this was “very different to getting the job done on budget and in time.”

“These plans mean yet more money is being poured into plugging the hole in revenues, and it’s far too soon to know if the efforts will stem the flow long-term,” She said. “Essentially there are a lot of “what ifs”.

Tom Singlehurst, an analyst at Citi, which recommended buying shares, said the market had “taken the view” that factors that had damaged US higher education were not isolated incidents, while those that had boosted revenue were one-offs.

“Therefore the view is that the maintenance of FY guidance is something of a fluke,” he said. “We think this is not only harsh, but actively wrong.”

Higher education revenue fell 7 per cent, as sales rises in Canada and the UK were offset by a 9 per cent decline in the US.

However, revenue in the qualifications division increased 24 per cent as test volumes at its online exam proctoring service grew to 2.3m from 1.3m in the same period last year.

Commenting on the share tumble, Bird said the company was in a strong position and that he was “really positive” the company was “going to meet market expectations”.

“I’m focused on delivering our business with the strategy that we’ve laid out — we’re demonstrating the resilience of the portfolio,” he said. “That will lead to continued good results.”


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