Education is the great equalizer. But access to quality learning has been far from equitable, resulting in severe disparities in wealth, economic growth and advancement across the world.
Morgan Stanley Research thinks technology will help close the gap over the next decade. In the process, analysts estimate that it could transform the vast and diffuse global education industry to an $8 trillion market by 2030 from $6 trillion in 2022, with consolidation, scale and efficiency more likely than growth to drive value.
“Education is experiencing the biggest evolution since the printing press was invented in the 15th century,” says Stephen Byrd, Morgan Stanley’s Global Head of Sustainability Research. “Today, as then, the use of technology in education allows faster spread of information and democratizes learning. It enables a myriad of new methodologies that improve the quality of learning, and it makes the educational system more efficient and less costly.”
Driving Innovation with Technology
Persistent high inflation has taken a toll in nearly every corner of the economy, and education spending is no different. Byrd expects private and public spending on education to drop from 5.9% of global gross domestic product in 2022 to 5.3% in 2030.
As private capital accounts for a greater share of total education spending, Morgan Stanley anticipates an emphasis on education technology (edtech), which refers to the combination of IT tools and education practices to facilitate both in-classroom and remote learning. In particular, edtech can lower costs for global education. As such, analysts expect edtech to grow at a faster pace than the overall education sector, from $250 billion in spending in 2022 to $620 billion in 2030, supported by increased internet access, a rise in technology adoption and the high scalability of edtech business models.
“For companies that can leverage their digital capabilities and balance sheets, technology will allow them to break physical barriers to democratize learning and grow faster,” says Byrd. “We also think digitalization can boost profitability through cost dilution, increasing their ability to reinvest in growth.”
Here’s how analysts expect growth to play out across the education ecosystem:
Pre-K: A growing middle class and more women in the labor market, particularly in emerging markets, should help push the pre-K segment to a 2.9% annual growth rate, reaching $400 billion in spending by 2030. But the limited availability of qualified teachers could challenge gains.
K-12: The largest and fastest-growing segment in education is expected to reach $4.3 trillion in spending by 2030, or roughly 4% annual growth from 2022, to claim 54% of total education spending. The key growth drivers are likely to be expected population growth in emerging markets; resiliency and pricing power in the private segment; and higher spending on after-school and complementary learning, such as tutoring and English-language teaching.
Higher Education: Higher education is the second-largest education segment and one that offers significant opportunities for growth in the lower- and middle-income countries, which is expected to help it reach $2.4 trillion in education spending by 2030 at annual growth of 3.5%. But as technology brings more affordability and access, the advance of online learning could add deflationary pressures to college tuitions and limit the growth potential of spend in the segment.
Corporate and Lifelong Learning: This segment includes employee training and nonregulated, nondegree courses offered primarily online. Analysts estimate spending will reach $850 billion by 2030, growing 3.8% annually from 2022, supported by the acceleration of reskilling and upskilling worker populations, as well as the availability of innovative edtech solutions.
Managing Risk in an Undervalued Sector
Analysts see regulation and generative AI as the core risks. On regulation, there have been increased restrictions on for profit education as well as policies on after school tutoring in some markets that resulted in large drops in market caps of entities offering such services. On generative AI, analysts believe that while it poses a risk to some business models, it can also be an opportunity to further democratize education and in providing tailored education services.
Still, with many education names currently undervalued and trading below historical valuations, sales and earnings, now may be the right time to invest in education.
“We see attractive investment opportunities in the education market, especially among companies that can gain global share with innovative solutions while providing compelling sustainability benefits,” says Byrd. “Companies that can improve the quality of student learning, bring operational efficiencies, and increase accessibility and affordability will be best positioned.”
For deeper insights on the future of the global education market, ask your Morgan Stanley Representative or Financial Advisor for the full report, “Innovators Drive Opportunity in a Fragmented $8 Trillion Market” (May 1).