Shares in cloud-based education management software company PowerSchool Holdings Inc. took a hit Friday, likely a result of concern about artificial intelligence to the broader education software industry.
On Thursday, Folsom-based PowerSchool (NYSE: PWSC) reported it lost $11.8 million in the first quarter, compared with a loss of $11.9 million in the same quarter in 2022.
PowerSchool shares fell $3.02, or 15.5%, to $16.49 on Friday after it released earnings after market close on Thursday.
PowerSchool CEO Hardeep Gulati told the Business Journal the share price decline is likely a result of a fear of disruption in the broader education technology from artificial intelligence.
Chegg Inc. (NYSE: CHGG), which offers a direct-to-student learning platform, saw its share price fall 44% May 2 from $17.60 to $9.08. Education software provider Pearson PLC (NYSE: PSO), based in London, saw its share price drop 9.5% from $10.96 per share on the same day.
Gulati said that PowerSchool is business software running core applications, and it is not a content service, unlike Chegg and Pearson.
Research firm Raymond James & Associates, a subsidiary of Raymond James Financial Inc. (NYSE: RJF), on Friday continued to give PowerSchool shares an "outperform" rating, and it increased its share target price from $22 to $23.
"Ultimately, we believe the visibility into PWSC’s growth profile is higher than most investors appreciate, with a fundamental profile that’s not tied to the broader macro," said Raymond James research analyst Brian Peterson, in his report.
PowerSchool had revenue of $159.5 million in the first quarter, up 6.6% from a year earlier.
PowerSchool spent $25.4 million on research and development in the first quarter this year, down slightly from $26.6 million in the year-earlier period. Those investments will expand its capabilities and services to existing and new customers, increasing future revenue, Gulati said. "The innovation opportunity for us is tremendous."
The company is developing new analytics, personalization and workforce development products for its customers, which are public, private and charter schools and school districts, and in some cases government entities. In many cases, modules of PowerSchool are mission critical to running programs, he said. The company serves 50 million students in 90 countries.
PowerSchool uses AI in some of its applications, such as identifying students who need support and to develop personalized learning solutions. That is an opportunity for growth for PowerSchool, Gulati said.
One of PowerSchool's growth strategies is to get users of one of its 19 products to use multiple products. Cross-selling deals with existing customers in the first quarter were up 15% year over year, the company reported.
Also in the first quarter, the company signed its largest contract in the past two years, with an $11 million engagement in Puerto Rico, and it's working on other large customers, including the Los Angeles Unified School District.
While the deal with the Puerto Rico Department of Education was booked in the first quarter, the revenue generated from that contract may take several quarters to show up on the company's books, said Eric Shander, PowerSchool chief financial officer. "Revenue lags booking."
PowerSchool has 3,200 employees, with about 300 of them in Folsom. It is still hiring employees, and it's seeing results of cuts at other technology companies in recent months in that its job postings quickly get more than 100 applications inbound, Gulati said.
PowerSchool offers a unified cloud platform that has multiple products that support school administrators with programs that eliminate manual processes for everything from daily attendance to counseling to grades. It provides an integrated online platform for virtual learning, and offers support to teachers, parents and students with online lesson plans. It also offers analytics and assessment products, as well as career counseling and college search.
Many school systems have multiple and disparate legacy management systems ⏤ often housed in separate silos and in custom software systems ⏤ Gulati said, adding that PowerSchool can connect all that data.
As schools and governments evaluate the systems they have implemented to manage learning shortcomings, student loss and teacher shortages, "they realize the priority to break down silos and leverage the whole-child insight for surgical intervention strategies," Gulati said.
PowerSchool's initial public offering of stock in 2021 raised the company $766.1 million, net of underwriting costs and commissions.
The company didn't announce any acquisitions in the first quarter.
"We are always acquisitive, but we are also very selective. We can afford to be selective," Gulati said.
