Pearson delivers 'strong' nine-month update as Bird shares AI challenges

Pearson’s nine-month trading update showed revenue growth was up by 5%, upgrading profit guidance by £20m, as outgoing c.e.o. Andy Bird discussed the dangers of Artificial Intelligence (AI). 

In the media call on Monday (30th October), Bird said: “This growth demonstrates another period of strong financial performance and reflects the continued execution of our strategy."

He said the company was upgrading its four-year expectations for adjusted operating profit guidance by £20m to the range of £570m to £575m. He also confirmed Pearson’s £300m share buyback programme has started and "is progressing well".

The topic of AI dominated much of the media call and Bird described how it could often deliver the wrong answer. “In some ways, AI can be like a bratty teenager who’s always right even when they’re wrong and we have to make sure any output that Pearson gives from generative AI can be trusted.” 

On governance, Bird said: “There is a use of personal information aspect, compliance and regulatory aspect, also copyright infringement and right of payment to authors of copyrighted material, we are noting with interest some of the cases coming forward from authors and also what is happening in the music space. We invest a lot in proprietary data sets which are a lot more than just words... it’s the structure of those words... what is used to train these AI models includes a lot of noise in the system. It’s still very, very early stages and I applaud the steps regulatory bodies are taking to ensure all of us as consumers and owners are recognised, protected and compensated.” 

Bird was asked to comment on how it affected plagiarism, particularly in reference to the Rachel Reeves book controversy. “The issue of plagiarism unfortunately goes way back before gen [generative] AI,” he said. “We have technology that allows us to see where plagiarism is taking place. It is an area in which universities are very focused upon, it’s about creating the frameworks and regulations and rules in how to utilise AI and gen AI as a source just as you would with other reference material.  

“It’s also important that students understanding that results you get with gen AI might not be wholly accurate as well... that’s why we’re looking at our own AI tools trained on our own proprietary content — high quality data in means much better quality data on the output. One of the interesting things with generative AI is the opportunity to use the tool to really personalise and individualise a student’s learning patterns because we all learn in different ways.”   

Highlights included the English Language Learning division which delivered a strong performance and in Assessments and Qualifications revenue which rose by 8% largely driven by a strong performance in Pearson VUE with good growth in IT and healthcare, alongside new contracts. 

There was also good growth across US Student Assessments, Clinical and UK & International Qualifications, due to new contract wins, good government funding and price increases respectively. 

However Virtual Learning revenue dipped by a fifth (20%), primarily owing to an 81% expected decrease in the Online Program Management [OPM] business given the previously announced loss of the flagship online programme partnership with Arizona State University (ASU). This also meant Virtual Schools declined 4%, with Q3 impacted by enrolments for the 2023/24 academic year, which were lower due to the ASU contract loss. 

Higher Education revenue was down 5%, in line with expectations, driven by pricing mix impact and the previously highlighted deferral of revenue into Q4 this year due to a revenue recognition shift driven by Pearson+ and platform product growth.  

Additionally revenue in businesses under Strategic Review decreased 60% as expected.

Pearson+ continued to perform well, with around 30% growth in paid subscriptions year on year. 

English Language Learning revenue increased 34% largely driven by excellent Pearson Test of English (PTE) volume growth. 

Workforce Skills revenue grew 8%, with what Pearson deemed “a solid performance” in both Vocational Qualifications and Workforce Solutions.  

As he finished the call, Bird said: “We’ve reported yet another quarter of strong financial performance and are making real strategic progress. And this is the last time I’ll be doing this – I’ll be riding off into the sunset at the end of the year. We announced that Omar [Abbosh] will be starting on 8th January and personally speaking I’m thrilled that we’ve managed to attract the talents of Omar to the company ... I’m confident that with the very strong foundations that we’ve laid over the last few years that Omar will deliver further shareholder value and take Pearson on to the next stage of this journey.”