Friday, November 25, 2016

"Pearson’s Bet on Common Core Fails to Pay Off" (PSON)

As we approach the one year anniversary of Pearson's sale of the FT to Nikkei, it's also the anniversary of a damn interesting equity call that followed immediately after the transfer of that property (see after the jump) and Pearson has a problem in one of their biggest markets.

And do note, this article came out the day before the President-elect named Betsy DeVos as his choice for Secretary of Education.
DeVos is a staunch opponent of the 'Common Core' curriculum.

From the Wall Street Journal Nov. 22, 2016:

Big education company miscalculated in its investment in a digital curriculum 
Pearson PLC, the world’s largest education company, made a major miscalculation on the Common Core academic standards, expecting a windfall that failed to materialize as it headed into a downward spiral in sales, stock price and staff.

The company’s Common Core strategy ran into trouble on two fronts: It struggled to develop and deliver new digital courses on time, as the academic standards themselves faced a political backlash in which several states pulled out.

Pearson’s strategy included a digital curriculum for the common academic standards approved by most U.S. states starting in 2010, and a vigorous pursuit of standardized testing contracts that backfired. Those were among several factors that hurt the U.K.-based Pearson, exacerbating a decline in U.S. college textbook sales that company executives say is the primary culprit for its problems.

Pearson’s share price has declined 32% over three years and sales have fallen in three of the past four. It has laid off thousands of employees. Investment analysts have predicted that Chief Executive John Fallon could be replaced if the situation doesn’t turn around.

Mr. Fallon, in a recent interview with The Wall Street Journal, said Pearson will eventually make money on its Common Core courses and is heading for recovery. “We are testing the patience of our shareholders, and we have to get on and deliver,” he said.

Reduced college enrollment and the closure of some for-profit colleges in the U.S. have cut college textbook sales, Pearson’s largest North American revenue stream. Those problems and others reduced Pearson’s profits by $338 million a year, “which for a company of our size is a lot to absorb,” Mr. Fallon said.

As for Common Core, Pearson invested more than $125 million to build the digital courses, but they are three years behind schedule and haven’t produced returns, current and former executives say. Last year Pearson took a write-down of about $103 million on that and other digital products. Worse yet, its high-profile role in controversial Common Core testing brought a backlash in some states, and it lost several big U.S. contracts.

“The simple fact is that Pearson’s brand is politically toxic in the United States,” Ian Whittaker, an analyst at Liberum Capital Ltd., wrote in January....MORE 
On December 1st 2015 there appeared at the daily FT Alphaville Markets Live the following which we memorialized in a December 30 post wrapped with a video, brief introduction and picture:

Possibly the Funniest (profitable) Thing We Saw In 2015: FT Alphaville's Founder/Editor Channels Mr. Subliminal

For our younger readers, here's Mr. Subliminal on Donald Trump cheating on his wife Ivana in 1990:

                                                                                        Comedian

And here's FT Alphaville's editor, Paul Murphy,


 
Hard-bitten journalist

on former FT Alphaville owner Pearson and its stock, Dec. 1, the day the Financial Times was handed over to Nikkei, while appearing to be having a normal conversation with Alphavillein Bryce Elder:

...PM
(So here’s our advice on the stock at 832p….)
PM
Run )
BE
...Today, though, the message is dovish. So we’re all choosing to forget about 2016.
PM
Scarper )
PM
Get out )
PM
Bin it )
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PM
( You don’t think another profit warning is coming? Oh course another profit warning is coming! )
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PM
( And I can tell you it’s a screaming sell. )
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PM
( I can tell you what happens next…)
PM
( Having focused the business down and down and down so that it’s pure corporatised education…)
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PM
( And with corporatised education, er, falling slightly out of fashion…)
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PM
( The next effort will be to slash costs — slashing with a blunt knife. A panic. )
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PM
( My guess is 15 per cent of the workforce will go. )
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PM
( Across the board. )
PM
(except not in the boardroom, of course )
PM
(It’s a lucky escape for us, cos the 15 per cent cut would have hit us as well. 100 journo jobs would have gone. )
BE
Is that enough on banks? Actually, Goldman too. Just because.
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PM
(If you look back to the late 90s, the FT had all the bits to construct Bloomgerg. )
PM
( Had a world class consumer offering in the form of the paper )
PM
(But it also had a newswire, and an online markets business — Market Watch.)
BE
Should we move on to other matters?
11:22AM
PM
(It had data, in the form of IDC)
PM
(Had Extel. Had what became factiva.)
PM
(Had a huge EM news business.)
BE
Okay …………. I think I have to do a quick bit of de-RAW here.
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BE
Coincidentally, we were chasing the same story from a slightly different angle.
BE
The rumour that reached us was that National Grid was working on a bid of around $45 a share for ITC …
PM
(People here complained of a lack of investment from Pearson. Investment??? They were sucking the life-blood out of the thing. )
BE
… However, that would all appear to be very, very premature..
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...MORE

Yesterday the stock closed at 783.91, making the Dec. 1, '15 sell rec at 832 look good but the thing I'm wondering is: Can PSON revisit the 657.50 it closed at on Jan. 20 of this year?