Is Pearson Education in Serious Financial Trouble?

On April 3, 2014, Pearson PLC closed on the London Stock Exchange at a price of 1008. This was down from a high of 1365 in 2014, which is a loss of over 25% in value. said that a PSO Trend Analysis showed that Pearson had done 23% worse than the S&P 500 index. In a press release posted on Pearson’s website in January 2014, the company’s president, John Fallon, talked about the company’s financial problems. However, he said that they were caused by cyclical factors and the move to digital platforms. But the headlines on the financial pages suggest that Pearson, the “education” and publishing giant, may be in more serious financial trouble than Fallon says.

Bloomberg said in February 2013 that Pearson PLC (PSON) “Operating profit is expected to stay the same in 2013 as the company cuts jobs and spends more quickly to move its education business from print to online. The stock dropped as much as 6.3%, which was the most in a single day since October 2008. . . Pearson said that school budgets are still tight and that the business is moving away from selling books in print and toward selling digital subscriptions. ” In November 2013, the Financial Express wrote, “Goldman Sachs changes its recommendation on Pearson from “buy” to “neutral,” and lowers its price target from “1590p” to “1530p.” This was in response to this and other events.

Pearson’s problems kept getting worse, and on January 23, 2014, Bloomberg reported, “Pearson Declines Most Since 2002 on Digital-Expansion Costs.” A media analyst at Liberum Capital in London named Ian Whittaker said, “The real shock will be on restructuring,” and he suggested that Pearson stock be sold.

On February 28, 2014, a Bloomberg headline said, “Pearson Plunges as Earnings Drop on North America Education.” Profits for Pearson PLC (PSON) dropped by 5.9% in 2013, and the company said, “It won’t come out of a tough transition period until 2015, after earnings fell last year because of weak demand in U.S. higher education and restructuring costs.” The company said, “Pressure on its U.S. performance should ease in 2015 as changes to the curriculum take effect and college enrollments stabilise.” It also said that “good growth in digital, services, and emerging markets” would be “partially offset by cyclical weakness in US higher education and changes to school curricula in the US and UK.” In March 2014, Pearson’s higher education division told people they would be losing their jobs.

Pearson has been working hard to expand its education, digital services, and testing programmes in the U.S. and in Third World countries, but the problem may be that the company is already doing too much and can’t keep its promises. The University of Florida chose Pearson in February 2014 to maintain and promote its online undergraduate degree programmes. However, the partnership got off to a bad start when the project director quit after only three months. When people found out that Pearson wanted the university to pay cash up front for the project, both Pearson and the university were criticised. Over the course of the 11-year contract, Pearson stands to make $186 million. There was also at least the appearance of wrongdoing because Pearson had given money to a foundation set up by Jeb Bush, who was the governor of Florida at the time. Pearson is also pushing online CourseConnectTM Early Childhood courses through Pearson’s eCollege, even though there is no proof that early childhood education can be best delivered digitally without candidates actually working with children. Also, there is no guarantee that state education departments will really accept these classes for certification.

About 60% of Pearson’s sales come from the United States. In 2013, 55% of the company’s operating profit came from its North American Education division, and 19% came from its International Education (emerging economies) division. Pearson’s Professional division, which made up 7% of the company’s operating profit in 2013, is also heavily invested in global education by offering online tests and English language lessons. The company is worried that its U.S. market might go down because fewer people are going to college and people don’t like the Common Core standards and tests. Between 2012 and 2013, profits at its Penguin Random House division went down by 20%.

New York State is in the middle of collecting edTPA portfolios from student teachers. Pearson will look at the portfolios to see if candidates are ready to become teachers. But as of March 17, 2014, Pearson was still looking for people to evaluate the portfolios. Pearson asked that “scorers have both strong pedagogical content-specific knowledge and experience in roles that support teaching and learning in the edTPA content area in which they are scoring,” but they didn’t have a way to evaluate the evaluators. The portfolios have twenty minutes of video and up to fifty pages of lesson plans and comments, but evaluators were expected to finish their job in two hours and were paid $75 per portfolio or $37.50 an hour if they worked quickly.

Pearson’s financial hopes may depend on how well it can dominate online education in places like India, where it is investing in “edupreneurs,” or for-profit start-up companies that will compete for public education dollars. It made the Pearson Affordable Learning Fund, a for-profit venture fund, to meet what it calls a “growing demand for affordable education services in Africa, Asia, and Latin America.” The fund is working in eleven countries, such as Bangladesh, Brazil, Ghana, Pakistan, the Philippines, Uganda, and the Philippines. Opponents of these low-cost for-profit schools have said in front of the British House of Commons and on a BBC website that they take money and support away from state-run schools that serve most students and that if they don’t make money, they will go away as quickly as they came. Pearson and its partners may make money, but if the public school systems in these countries get worse, the people who live there will suffer in the long run.

People in the U.S. might not care much about what happens to public schools in India, Africa, and Latin America, but Pearson’s efforts to grow its business can have bad effects on education and community life in the U.S. At the moment, Pearson College in the UK offers online business courses and degrees. In the U.S. Pearson works with more than 200 colleges and universities to offer classes and services online. Pearson’s partners include Teachers College Columbia University, whose president is on Pearson’s Board of Directors, and the George Washington University School of Business. Other partners include state university systems in California, Colorado, Iowa, Indiana, Kansas, New Jersey, Arizona, North Dakota, Texas, and Washington, as well as private and religious schools like Charleston Southern, Palm Beach Atlantic, and Indiana Wesleyan. EmbanetCompass is a part of Pearson. Adelphi University, Boston University, Brandeis University, and Northeastern University are some of its clients.

The University of Southern New Hampshire, which says it doesn’t make money from its online courses, has grown quickly across the country thanks to Pearson’s EQUELLA digital repository system. Paul LeBlanc, the college’s business-minded president who calls students “customers” and was paid $350,000 in 2006-2007, the only year I could find and before the college’s huge growth. Since then, Southern New Hampshire, which advertises a lot on TV, has grown to be one of the five biggest online colleges in the United States that is not for profit. According to the Chronicle of Higher Education, the College of Online and Continuing Education in Southern New Hampshire made $73 million in 2011 and an estimated $100 million in 2012. Even though it is a non-profit organisation, its online programme made a profit of 41% in fiscal year 2011.

Related Stories

Leave a Reply