Education specialist Pearson PLC (LSE:PSON) has announced that a key US contract is ending after ten years.
Its online program management partnership with Arizona State University - which helped the university expand its online services and resources - will be terminated in June 2023.
Pearson said the profit impact would be modest in 2022 and 2023 and would be offset after that through eliminating related costs and re-directing investment.
The group added that there was no change to its financial guidance for 2022, which has helped its shares recover from an earlier fall to stand at 770.8p, down just 0.16% after dropping as low as 743.2p.
It still expects to achieve mid-single digit compound annual revenue growth from 2022 to 2025 and for group margins to remain relatively stable in the near term, improving by 2025 to mid-teens.
But analysts at UBS said: "We think the end of this contract could... mean that the Virtual Learning segment within Pearson may not grow in 2023-24 (current forecasts for underlying growth of 6% in both years).
"[The contract termination] will, we think, make investors more cautious on placing value on these revenues within Pearson. It is a reminder that under an online program management contract, the intellectual property sits with the university partner with the [manager] operating as a service provider
"It is also a concern that one of Pearson's largest contracts in this area was only minimally profitable given no change to guidance. Pearson may need to invest more aggressively in online degree lead generation in order generate meaningful profits from its online program management business, for example by building its own Pearson branded consumer destination for online degree programs."