A few Fools worked from our London bureau last week, which gave us the opportunity to visit a U.K.-based multinational worthy of attention from U.S. investors: Pearson
Pearson owns Penguin Books and the Financial Times newspaper and has a 50% ownership stake in The Economist, but its education division accounts for the bulk of sales and earnings. We met with Pearson leaders at its corporate headquarters in London last Tuesday. Here's what we took away from the meeting.
Jordan DiPietro: I was impressed not only by Pearson's critical and continual focus on education, but also by the company's dedication to moving in a totally digital direction.
In the education group, Pearson is the leading college publisher in the world, offering publishing services for all grades and into professional life. However, it is also beginning to offer technologies and services that can be supplemental sources of revenues, such as assessments, reporting, financial software, and overall business solutions. These types of products are typically higher-margin, and they're fantastic for a company because of their scalability.
This drive toward digital services reminded our group of companies like IBM
Brian Richards: Pearson reminded me a lot of The Washington Post
Pearson's identity and growth strategy seems quite focused on education -- the first 10 minutes of our talk dealt entirely with plans in the education division. There are big opportunities, too; Jordan mentioned the company's focus on 'services-based' offerings, which is straight out of IBM's playbook.
Mine is a simple point, but even with respected brands like Penguin and FT, I found it reassuring that Pearson's identity lies in capitalizing on the long-term business of education.
Anand Chokkavelu, CFA: My big takeaway from Pearson was that it seems focused on revolutionizing a market that investors probably underestimate. As Brian mentioned, the education market (textbooks and testing) is the big kahuna for Pearson, accounting for about three-quarters of trailing profits from continuing operations.
Pearson's strategy is to go way beyond its Prentice Hall and Scott Foresman textbooks by making its offerings more interactive, utilizing the Internet and supporting new technology like Apple's iPad. It's trying to innovate before someone else does. For example, we saw a convincing graph plotting the company's spending on research and development versus that of its main publicly traded competitor, McGraw-Hill
If Pearson can truly make its offerings more interactive than competitors (McGraw-Hill, Houghton Mifflin, future start-ups, etc.), and if it can convince potential customers of this (e.g., governments, professors, for-profit schools), the upside could bring the glorious trifecta of a bigger overall market, bigger market share, and bigger margins.
I'm convinced enough of the potential here to put Pearson on my watchlist.
Owain Bennallack: I hadn't appreciated the extent to which Pearson sees itself meshing into the infrastructure and services side of education, as opposed to simply putting books in front of pupils.
I'll have to revisit its reports to see how that's reflected in earnings, but in terms of the corporate vision, the educational publishing business is just one component of a wide offering. Being the "IBM of learning" could be more efficient in terms of a global rollout, too, compared to, say, focussing on creating country-specific course material.
Interested in Pearson? Add it to your watchlist.