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Morningstar | Despite Its Publishing Struggles, Wiley Enjoys Significant Advantages in Its Other Businesses

With a journal business that consists of must-have titles that often face little direct competition, we contend that Wiley has a wide economic moat based on the strength of its intangible assets and the network effect associated with journal prestige. The switching costs associated with its journal, online university program management, and corporate learning initiatives add to the firm’s standing. However, the ongoing shift away from print books, particularly textbooks, alongside slowing digital book growth leads us to believe Wiley’s competitive advantage is deteriorating somewhat.The research publishing and platforms segment (52% of fiscal 2019 revenue) contains Wiley’s journal business. Although library budgets are strained, limiting segment top-line growth, Wiley’s catalog is essential and its content library, digital platform, and relationships with universities and other institutions make it a valuable partner for authors as well as professional societies that engage the firm to publish their own volumes. These societies give Wiley another way to leverage capabilities developed for the benefit of its in-house titles.The publishing segment (32% of fiscal 2019 revenue, before a re-segmentation due to occur in fiscal 2020) contains Wiley’s professional and educational book and reference material units (digital and print), which combine for about a quarter of the firm's sales. Books remain challenged, particularly in education, where used and rental textbooks and the rising use of nonbook alternative learning materials provide stiff competition. Still, we believe the segment’s course workflow and test preparation and certification businesses have meaningful potential as the firm leverages its content library in more durable ways.The solutions segment is Wiley’s smallest, at 16% of fiscal 2019 revenue (also to be re-segmented in fiscal 2020), but contains fast-growing offerings that should be increasingly profitable as they scale. Its corporate learning and education services products are differentiated and delivered based on multiyear contracts, and we expect these offerings will help overcome the deterioration in books while adding recurring revenue streams.