logo-loader
viewPearson PLC

Pearson stops the presses with shift to “digital first” strategy

Under the new model, Pearson's 1,500 US textbook titles will be published as eBooks first, with students able to rent print copies if they choose to

Pearson webpage
The move forms part of Pearson's push to restructure its US higher education business

Shares in publishing group Pearson PLC (LON:PSON) jumped on Tuesday after the firm announced that all future releases of its US college textbooks would be published in digital format before printing.

The FTSE 100 firm, breaking with the model of what it said was “lengthy and expensive print revisions” of textbooks that have dominated the market since the 1970s, will now release updates to its 1,500 active US titles on a “digital first” basis.

READ: ShoreCap upgrades Pearson as digital transformation gains traction

John Fallon, Pearson’s chief executive, said that with “nearly 90%” of learners using digital education tools, students were demanding access to more accessible and cheaper higher education materials.

This shift in the company’s business model, he said, would provide customers with “affordable, convenient and personalised digital materials” while also having the added side effect of increasing revenues over time.

He added that the move would also provide a more predictable, visible revenue stream with a better quality of earnings for the group.

Under the new digital structure, students can be expected to pay an average of US$40 for an electronic textbook or US$79 for a full suite of digital learning tools. However, students who still desire a print copy will be able to rent one for around US$60.

The new model may also come as a boon for US college students, who currently have to contend with eye-watering costs that can see them forking out as much as US$1,200 each year for books and course materials.

Pearson has been pushing to restructure and better digitise its US textbook business to stem a decline that has already contributed to a series of profit warnings.

Evidence of the turnaround’s benefits began to appear in the first quarter of 2019, with the North American business reporting a 2% rise in sales compared to a 1% decline the year before.

Investors gave the news a good grade in mid-morning trading, with Pearson shares rising 3% at 889.8p.

Broker expects revenue “dip” for first two years

However, analysts at Liberum remained unimpressed by the digitisation plans and reiterated their ‘sell’ rating and 550p target price on Pearson’s stock.

The broker said in a note that the shift was an “implicit admission” that the age of sky-high textbook prices was over, although 45% of its US higher education revenues were still derived from print textbooks and that this legacy area would need to be managed as it would also incur “legacy print costs”.

Liberum added that while the shift could bring through long-term benefits, they expected to see “a dip in revenues” over the first two years at least as prices dropped.

Quick facts: Pearson PLC

Price: 642.6 GBX

LSE:PSON
Market: LSE
Market Cap: £5.03 billion
Follow

Add related topics to MyProactive

Create your account: sign up and get ahead on news and events

NO INVESTMENT ADVICE

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is...

FOR OUR FULL DISCLAIMER CLICK HERE

Watch

Full interview: Piedmont Lithium secures landmark Section 404 Permit to...

Piedmont Lithium Ltd (ASX:PLL) CEO Keith Phillips tells Proactive the lithium explorer has received the Section 404 Permit under the Clean Water Act from the US Army Corps of Engineers for its lithium project in North Carolina. Phillips says this landmark achievement follows a fair, albeit...

1 day, 18 hours ago

3 min read