It’s been the year of AI advances and education upheaval from a new administration in the White House.
And with it, new territory for educational book publisher McGraw Hill.
“For us, in some states they see it [Department of Education wind down] as a benefit because you’re removing some of the bureaucracy. And for us, in many ways, our focus is always at the local level,” McGraw Hill CEO Simon Allen told me on Yahoo Finance’s Opening Bid.
“So to us, it’s kind of a nonevent as it relates to the performance of our company,” he added.
The Trump administration has moved like a bull in a china shop to change the US education system. Department of Education Secretary Linda McMahon told me at the Milken conference in May that the department was aiming to close in 2026.
“It’s the right call” to shutter the DOE, McMahon said at the time.
This comes on top of Trump’s attacks on higher learning institutions such as Harvard University.
Meanwhile, his administration has floated $12 billion in cuts to public education in fiscal year 2026. The cuts would span higher education, research, and data collection.
“We’re pretty much immune from any changes that you see there because every school, every student needs learning materials, every teacher needs the material,” Allen explained.
Still, the DOE’s shutdown and the budget cuts could stunt demand for McGraw Hill’s physical books and digital offerings. Factor in declining US birth rates, fewer high schoolers signing up for college, and the proliferation of AI tools like ChatGPT, and it’s no small wonder McGraw Hill’s IPO was met with a yawn.
McGraw Hill stock opened at $17 on its July 24 IPO day. The company had priced it at $17 after targeting a range of $19 to $22. It ended up raising $414.6 million.
“Generative AI systems, such as ChatGPT, appear to be proficient at generating quality text and may be used to create various learning materials, potentially lowering the demand for McGraw Hill’s products. Furthermore, educators are also increasingly asking that publishers develop digital tools with embedded AI functionality, and the inability to offer competitive AI solutions may result in the loss of some of the contracts currently serviced by McGraw Hill,” JPMorgan analyst David Karnovsky warned.
Shares have continued to trek lower since the IPO despite the summer stock rally and what looked to be a solid quarter reported on Aug. 14. Shares currently change hands around $14.50.
McGraw Hill said fiscal first quarter sales rose 2.4% year over year to $535.7 million. Adjusted operating profits advanced 7.2% from the prior year to $191.4 million. It has over 26 million digital users.
Brian Sozzi is Yahoo Finance’s Executive Editor and a member of Yahoo Finance’s editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.
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