The stock market currently prices Wiley as though even the durable aspects of its business will soon disappear. Meanwhile, peers Reed Elsevier and Pearson trade inline with their actual business prospects. That Wiley trades at a discount is a head-scratcher — and indicates that a bargain is available.
The bulk of Wiley’s profits — 84% — come from its research division. The research division is comprised of academic journals and associated niche books and databases. Wiley, Elsevier, and a handful of others dominate the academic journal market.
Wiley’s journals include Space Weather Quarterly, System Dynamics Review, and Journal of the Peripheral Nervous System. These are extremely niche; there are only one or two journals of significance in many of these niches — and Wiley publishes them.
Wiley’s academic journal clients are predominately libraries and government institutions. University and public libraries need access to journals; if a library was to not purchase any one of the major publisher’s bundles, its patrons would be unable to access top journals across many different fields. No library of consequence can afford not to subscribe to Wiley’s bundle. This gives the company tremendous pricing power.
In summary, Wiley’s journals have wide moats because they dominate niches and Wiley’s bundle has tremendous pricing power because it contains must-have journals. This makes up 84% of Wiley’s profits; so the vast majority of the company’s profits are protected by a wide moat.
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