Wiley's Q1 Earnings: Can Margin Gains and AI Investments Usher in a Turnaround?

Wiley (WLY), the academic publishing giant, has long been navigating headwinds in traditional print markets, but its Q1 2025 earnings report offers a glimpse of resilience—and perhaps even a path to sustained growth. With adjusted EBITDA margins hitting 24% and AI-driven revenue surging, the company is positioning itself for a turnaround. But investors must weigh these positives against lingering risks, including a still-fragile revenue trajectory and the sustainability of its dividend. Here's what the numbers reveal.

Revenue Decline vs. Margin Strength: A Mixed Picture

Wiley's top-line struggles remain evident. Total revenue for fiscal 2025 fell 10.4% to $1.68 billion, driven by divestitures (notably its university services division) and restructuring costs. However, excluding these one-time factors, core revenue grew 3%, signaling underlying strength. The decline in headline sales contrasts sharply with a 266% jump in operating income to $221 million, as reduced restructuring charges and cost-cutting efforts (corporate expenses dropped 10% in Q4) fueled profitability.

The key question: Can margins stay elevated? Management has raised its fiscal 2026 EBITDA margin target to 25.5%-26.5%, up from 24%, citing further cost savings and efficiency gains. The Research segment's margins rose 30 basis points to 32.1%, while Learning's margins expanded 250 basis points to 37.4%, thanks to operational streamlining. If these trends hold, Wiley's profitability could stabilize even if revenue growth remains muted.

AI Licensing: The Growth Engine with a Catch

Wiley's $40 million in AI licensing revenue for FY2025—up from $23 million in 2024—is the star of its recent performance. A $18 million deal signed in Q4 FY2025 contributed $9 million to 2025 earnings, with the remaining $9 million to be recognized in Q1 . However, executives warned that FY2026 AI revenue may lag as demand shifts from large “pre-training” licenses to smaller, vertical-specific projects. While this shift could reduce top-line volatility, it raises questions about scalability.

The real opportunity lies in vertical-specific AI applications, which generated $1 million in recurring revenue in 2025. These pilot programs—such as partnerships with Amazon Web Services for scientific research and pharmaceutical companies for drug discovery—could unlock new markets. Yet, these remain nascent, and Wiley's ability to monetize them at scale is unproven.

Dividend Sustainability: A Tightrope Walk

Wiley has raised its dividend for 30 consecutive years, a rare streak of consistency. The current yield of 3.5% is attractive, but investors must assess whether the payout is sustainable. Free cash flow rose 10% to $126 million in FY2025, but the payout ratio (dividends relative to FCF) is elevated. Management's $200 million FCF target for FY2026 offers hope, but if AI revenue disappoints or costs rise, the dividend could come under pressure.

Valuation: Undervalued or Overhyped?

Wiley's stock trades at a forward P/E of 12.5x, below peers like Elsevier (private) and Springer Nature (SN). Analysts' average price target of $35 (versus a current price of $28) implies upside, but this assumes margin expansion and FCF growth materialize. Meanwhile, the sale of its university services division—which freed up $120 million in cash—reduces debt and lowers interest expenses by ~$5 million annually, bolstering FCF.

The Bottom Line: A Buy with Caveats

Wiley's Q1 results suggest it's making progress on its turnaround strategy. Margin improvements are real, and AI is delivering revenue growth in a sector hungry for innovation. The dividend, while safe for now, requires close monitoring.

Investment Take:
- Buy if: You believe margin expansion and AI partnerships will drive consistent FCF growth. The stock's valuation offers a margin of safety.
- Hold if: You're skeptical about AI's scalability or worried about macroeconomic risks to its professional publishing business.

The risks are clear—reliance on nascent AI revenue, weak professional sales, and a dividend that demands strong FCF. Historically, a strategy of buying on earnings announcement dates and holding for 30 days underperformed, generating a CAGR of 6.13% with excess returns of -71.61%, underscoring additional execution risk. While the stock's current price reflects these concerns, for a conservative investor, Wiley is a speculative play on the future of academic publishing. For a growth-oriented portfolio, it's a compelling bet—if you're willing to ride the volatility.

Backtest the performance of Wiley (WLY) when 'buy condition' is triggered on earnings announcement dates, and 'hold for 30 trading days' after each earnings release, from 2020 to 2025.