Wiley's ROCE Trajectory and Capital Allocation: A Value Investor's Look at Sustainable Compounding

For a value investor, the first question is always about durability. Does Wiley possess a wide and sustainable competitive moat? The evidence points to a business that is successfully building one, anchored in the enduring need for knowledge and learning, while also leveraging its intellectual assets into new, high-margin markets.

The core of this moat is the dual engine of academic publishing and corporate AI services. The academic side provides a resilient, recurring revenue base. In the Research segment, revenue grew 3% for the full year, driven by strong renewals and open access models. This stability is the bedrock. The more exciting development is the expansion into the corporate market, where Wiley is applying its deep scientific and technical knowledge to new services like AI licensing and science analytics. As CEO Matthew Kissner noted, the company is extending further into the corporate market through these initiatives, creating a second, higher-growth stream that is less cyclical than traditional publishing.

This dual focus is translating directly into financial strength. The most telling metric is the performance of the Learning segment, which includes both academic and professional offerings. For the full year, Learning Adjusted EBITDA was up 9% as reported and at constant currency. This is a powerful signal of profitable growth. More importantly, the segment's Adjusted EBITDA margin rose 250 basis points to 37.4%. This margin expansion, even as revenue grew, demonstrates operational leverage and pricing power. It shows the company is not just selling more content, but capturing more value from its intellectual property.

The ROCE Calculation: What It Tells Us

For a value investor, return on capital employed (ROCE) is the cornerstone metric. It measures how effectively a company uses its invested capital to generate profits. A rising ROCE signals that management is not just growing revenue, but compounding value by deploying capital into higher-returning activities. The numbers for Wiley's Learning segment in 2025 provide a clear case study in this principle.

The most decisive figure is the full-year 2025 Adjusted EBITDA margin for the Learning segment, which rose 250 basis points to 37.4%. This expansion is not a minor accounting tweak; it is a direct result of strategic capital allocation. The company is shifting its focus toward high-margin services like AI licensing and corporate science analytics. These initiatives, as CEO Matthew Kissner highlighted, are part of a multi-year journey of continuous improvement and innovation that is yielding material gains in profitable revenue growth.

This margin improvement is the engine behind a better ROCE. When a company can generate more profit from each dollar of capital invested, its return naturally rises. Wiley's pivot into corporate services is widening its competitive moat. These offerings leverage its deep intellectual assets into new markets with less cyclicality and higher pricing power, creating a more durable and profitable business model. The 250 basis point margin gain demonstrates that this strategy is working in practice.

The bottom line is that Wiley's financial engine is becoming more efficient. By focusing capital on high-return activities, the company is not only boosting its current profitability but also setting a path for a continued upward trajectory in ROCE. For a long-term investor, this is the definition of compounding: using profits to fund growth that itself generates even higher returns.

Capital Allocation and Shareholder Returns

The final test of a company's capital allocation is how it returns excess cash to shareholders. Wiley's recent actions show a disciplined approach, prioritizing both strategic investment and shareholder returns in a balanced manner.

The key recent action is clear: management has increased its share repurchase authorization. This move signals confidence that the stock is undervalued relative to its intrinsic value, a classic hallmark of a value-oriented capital allocator. The authorization provides a framework for buying back shares when the price offers an attractive entry point.

This strategy is built on a foundation of strong free cash flow generation. As CEO Matthew Kissner stated, the company is driving profitable growth, margin expansion, and cash generation. The robust 9% growth in Learning Adjusted EBITDA and the significant margin expansion provide the capital needed to fund this dual path. The company is not sacrificing future investments for present buybacks; instead, it is using its improved cash flow to do both.

The discipline lies in the balance. Wiley is using its enhanced cash flow to fund strategic initiatives like its expansion into corporate AI services, while also returning capital to shareholders. This approach avoids the extremes of either hoarding cash or over-leveraging for buybacks. It reflects a patient, long-term view: deploying capital where it can earn the highest returns, whether that is in the business itself or through a reduction in the number of shares outstanding.

For a value investor, this is the ideal setup. It means the company is compounding at the corporate level while also providing a mechanism for shareholders to participate in that compounding. The increased buyback authorization is not a gimmick; it is the logical conclusion of a business that has successfully improved its financial engine and now has the capital to reward owners.

Valuation and the Path Forward

For the value investor, the current price is a function of two things: the business's demonstrated ability to compound and the market's patience for that compounding to continue. Wiley has shown it can improve its financial engine, as evidenced by the 9% growth in Learning Adjusted EBITDA and a 250 basis point margin expansion. The question now is whether the stock's valuation adequately reflects this improving trajectory and the potential for further gains.

The primary catalyst for a re-rating lies in the continued successful monetization of its corporate segment. The company is explicitly extending into the corporate market through AI licensing and partnership, science analytics, and knowledge services. If these initiatives can replicate the margin expansion seen in the Learning segment, they will act as a powerful growth and profitability engine. The market will reward Wiley for proving it can consistently deploy capital into these higher-returning activities, thereby widening its moat and accelerating the ROCE trajectory.

The key risk to this path is the pace of digital transformation within its core academic market. While the company is driving growth in digital courseware and inclusive access, the broader academic sector remains in transition. Any slowdown in this shift could pressure the revenue base that funds the company's strategic investments and shareholder returns. The company's own results show the vulnerability: Professional performance excluding AI licensing was impacted by retail channel softness last quarter. This underscores the importance of the corporate segment's growth in offsetting any academic market headwinds.

What investors should watch for is not just quarterly beats, but the sustainability of the compounding cycle. The first signal is sustained free cash flow generation, which funds both strategic initiatives and the share repurchase authorization. The second is the execution of the capital allocation plan-balancing investment in corporate services with returns to shareholders. As CEO Matthew Kissner stated, the company is on a multi-year journey of continuous improvement and innovation. The market will reward patience with proof of progress on that journey.