Pearson led the FTSE 100 lower on Thursday after Exane BNP Paribas raised concerns about virtual schools, one of its fastest growing businesses.
On a regular basis I post updates about the corporate actions of K12, Inc. – including both the MarketBeat update and Google alert this morning. Folks that know me, and those that follow this space on a regular basis, know that I regularly say that we can learn a great deal about K12, Inc. from its corporate filings – often much more from what the SEC requires them to disclose than we can from what they report to various Departments of Education. This is why I post the MarketBeat updates and Google alerts each time I receive them.
One of the difficulties with the field is that several years ago the other main provider of cyber charter schools (i.e., Connections Education) ceased to be a separate corporation and was swallowed up by the publishing giant Pearson Education. In its corporate filings, it if often difficult to impossible to determine individual information about Connections Education. However, last week this particular article came across my electronic desk.
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Exane worried that growth rates may not be sustainable for Connections Academy, an online-only public primary and secondary schools operator bought by Pearson in 2011.
Headwinds for the business include a lack of new school openings, enrolment caps on established schools and regulatory headwinds, it said.
It is interesting in that the article points to the lack of potential growth of the Connections Education division within the larger Pearson corporate entity.
Pearson has no new virtual schools due to open for the upcoming academic year, against nine in the past three years, and caps on student numbers mean enrolment growth has been slowing since 2013, it said.
The broker also noted evidence that student performance is worse at virtual schools than regular public schools with research from the Walton Family Foundation non-profit last year showing cyber schools had “significantly weaker academic performance in math and reading”.
Nevada, New Mexico, Michigan and Ohio have all moved to cut funding for virtual schools, it said.
“We are increasingly sceptical about the group’s ability to return to growth in North America this decade.
So, still not a lot of information – but an interesting glimpse…