John Wiley & Sons is a leading global provider of academic journals, textbooks, pre- and post-employment assessment and training, competitive exam preparation materials and online training program management solutions.
Wiley generated more than 80% of its total revenue from digital products and technology services in fiscal 2022, with just over half of total revenue coming from its publishing segment and research, 31% of its academic and professional learning efforts, and 16% of its educational services unit.
About half of the revenue generated in fiscal 2022 comes from customers in the United States.
The company has a two-tier ownership structure with members of the Wiley family controlling approximately 60% of the voting rights in the company’s capital.
A solid positioning
With a division that includes must-have titles that face little direct competition, and strong relationships with academic institutions, researchers and companies, we believe Wiley has a “wide competitive advantage.”
The cost of change associated with the academic publishing business, online curriculum management, and corporate learning efforts all contribute to its reputation.
However, the continued abandonment of textbooks, especially textbooks, leads us to believe Wiley’s position is deteriorating.
The Publishing and Research Platforms segment (53% of FY22 revenue) includes Wiley’s magazine business.
Library budgets are stretched, limiting growth, but Wiley’s catalog is essential and its content, platform and institutional relationships make it a valuable partner.
We do not believe that open access efforts jeopardize Wiley’s reputation.
The Academic and Professional Learning segment (31% of revenue in fiscal 2022) includes Wiley’s reference and textbook units, in addition to faster-growing course workflow, exam preparation and certification, digital courseware, and corporate learning efforts.
Book sales are slowing, especially in education where used texts, textbook rentals and alternative materials are stiff competition.
Still, we believe the segment’s other activities make more sustainable use of the company’s content library.
The education services segment is Wiley’s smallest (16% of revenue in fiscal 2022), but its offerings are expected to become increasingly lucrative, especially as the pandemic has accelerated the development of online education.
We believe that with its deep institutional ties in science, Wiley is poised to grow, with differentiated products often delivered on the basis of multi-year contracts.
Educational institutions use Wiley to manage all or part of their online degree programs.
We believe that customers should stay with Wiley for the longer term, as there is an investment of time and money at the beginning of a partnership and the solutions fit into the institute’s processes.
Additionally, the talent development unit (which trains and hires employees based on client needs) should allow Wiley to leverage his training skills through his relationships with the corporate world.
reduced time value
We’re lowering our fair value estimate to $52 per share from $56 after accounting for disappointing first quarter results on flat earnings.
We continue to expect long-term revenue growth in the mid-single digits and adjusted EBITDA margins averaging around 20%.
Our estimate implies an enterprise value/adjusted EBITDA guidance for fiscal 2023 of 9 and an adjusted P/E of 14.
For publishing and research platforms (53% of revenue in FY2022), we expect tight library budgets to limit revenue growth despite the expansion of Open Access agreements.
Platforms are expected to lead the growth of the segment, growing at an average of about 5% per year over the next 10 years.
Our segment revenue estimate projects 1% average growth through fiscal 2032, with Adjusted EBITDA margins remaining around 35%.
In academic and professional learning (31% of revenue in fiscal 2022), we see flattening performance in publishing and growth in courseware, corporate learning, test prep, and other more beneficial activities.
This should result in segment revenue growing on average in the low single digits per year through fiscal 2032.
Although digital material prices are lower, higher sales and margins should keep the segment’s adjusted EBITDA margin around 25%.
We expect the Education Services business (16% of revenue in FY22) to serve as a growth driver for Wiley as tailored offerings drive revenue on long-term contracts.
We expect high-single-digit average growth over the next 10 years, which will exceed our low-single-digit estimate for the company, supported by the accelerated post-pandemic adoption of long-term digital learning.
Economies of scale should improve profitability as Wiley signs more programs and university partners for the online program administration offering.
They should be lifted at cost as growth investments bear fruit, and over the next decade its adjusted EBITDA margin should be around 15%.
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