2U (TWOU) soared nearly 15 percent this past January. At the moment, the company is priced around $61. The stock was traded at a high of $90 back in early September. Unfortunately, 2U slid down to $53 a couple months later. The online education platform specialist recently bounced back from this dip, yet investors far and wide are somewhat skittish about 2U’s stability.
Investment analysts credit the company’s recent string of partnerships with its January bump. The question is, where does 2U go from here?
Some investors are sitting on the sidelines, still spooked from an odd November sell-off following a fantastic quarterly earnings report in which 2U leaders announced yearly sales will double in about three years to reach the billion dollar mark.
2U’s businesses is centered on bringing distance learning to elite universities as well as other learning institutions. Though 2U’s initial focus was on graduate level courses, the company also provides undergraduate courses. 2U’s partners typically ink decade-long agreements, some of which are with the world’s leading universities.
2U does business with an array of universities including the highly-ranked Georgetown University and the University of North Carolina Chapel Hill. The beauty of 2U’s business is it connects students and universities through the web for meaningful distance learning, proving mutually beneficial for all parties involved. 2U and its partners split the tuition down the middle.
When you take a step back and analyze 2U’s business model, it is clear this company marches to the beat of its own drummer. 2U’s line of work is highly unique. Its business relationships are stellar. Furthermore, 2U continues to expand its platform content. Though 2U might seem like a small-cap company, its execution is undoubtedly mid-cap.
2U beat out most indexes last month, partially because it joined forces with Tufts University School of Medicine. The two groups will collaborate to create a new domestic graduate program with two online graduate degrees: a Master of Public Health and a Master of Health Informatics. The company has also partnered with LinkedIn for career advancement initiatives. 2U has teamed up with The We Company for faculty to be provided at no-charge to WeWork workspaces around the world.
Clearly, 2U is a mover and shaker. What remains to be seen is whether these partnerships prove highly profitable. If nothing else, company executives deserve credit for expanding their scope and offerings to create a widespread brand that stretches across higher education.
On a GAAP basis, 2U is not profitable. However, plenty of businesses have operated in the red for years before reaching the black. 2U regularly reinvests in its graduate programs, making profitability that much more challenging. The company’s graduate program investments eventually pay off in the form of tuition yet this revenue is paid across the length of 10-15 year contracts. All in all, 2U has 65 graduate programs across 34 universities including the likes of Yale, Harvard, Cal Berkeley and Georgetown. The expectation is this base will double in the next two years, reaching more than 100 programs. If 2U can hit its goal of 250 programs in the United States and its international program provides supplemental growth, it is possible 2U will be in the black sooner rather than later.
It shouldn’t surprise investors one bit if 2U continues to grow and reaches profitability in the near future. The company is genuinely a victim of an unreasonable short attack that spurred an unwarranted decline. It appears as though the setback is temporary. The bottom line is human beings will require education, especially college-level courses for the foreseeable future. 2U is in the perfect position to benefit from this need as the company has business partnerships with more than 30 top collegiate institutions.
To summarize, It appears as though investors have oversold 2U. The bounce back in January is an excellent sign in terms of investor confidence. It should not shock anyone if 2U reaches a 52-week high in the next six months. If you believe in 2U’s business model, do not hesitate to add this up-and-coming company to your portfolio.
Regards,
Ethan Warrick
Editor
Wealth Authority
