2U may soon face delisting from the Nasdaq Exchange unless they implement a reverse share split to increase their stock price, which could prove catastrophic for them. We?ll take a closer look at 2U and some of its competitors in this week?s installment of “Headlines That Make You Go Hmmmm.”
2U Spilled From $5 Billion
2U Inc designs and provides online degree programs, alternative credentials and education technology solutions. It contracts with nonprofit colleges and universities to supply technology and services needed for building, delivering, supporting and hosting non-degree programs online. 2U also offers premium open courses, executive education programs and technical skills-based boot camps worldwide for customers worldwide.
Investors have always shown great enthusiasm for ed-tech companies, and this year saw several mega-rounds at high valuations. Unfortunately, however, profitability remains an ongoing challenge within this industry due to cash burn and turnover rates that often occur.
This week has seen several deals that demonstrate the resilience of ed-tech companies amid a pandemic, such as Purdue University’s $1 acquisition of for-profit Kaplan University. Also notable in workforce training space were Upskill’s $400M round and Guild Education’s $223M funding for their employee training platform that helps frontline workers transition to roles in specific high-demand tech fields.
The Company’s Financials
2U attracted significant investment and attracted top universities to offer online programs through their platform, suggesting it might become an education disruptor. Forbes even named 2U one of the companies helping “Change the World.”
Before the stock dropped precipitously and the company started cutting costs, management had taken several measures such as dismissing longtime CEO Chip Paucek; closing all remote offices; and ending key institutional contracts such as those with the University of Southern California to offer two new online public policy degrees.
In recent years, revenue share deals had become an area of contention with colleges as they established their own online-education capabilities. Now they have moved to reduce them further while encouraging schools to reduce tuition prices; offering to help market these reduced prices. It seems they recognize they cannot control every facet of education market – universities will still market themselves independently.
The Company’s Strategy
Since 2008, when 2tor was founded as an online degree and course provider to universities, this company has helped universities attract students by offering distance learning programs with student IDs, participating in campus commencement ceremonies, and earning degrees equal to those obtained on-campus.
2U expanded its business by providing recruitment, course development and student advisement services to schools for long-term contracts, enabling universities to offer classes online while maintaining control over curriculum development and brand positioning.
2U also expanded its reach through acquisitions, purchasing the online learning platform edX for $800 million in 2021 in an attempt to secure more university partners; however, this costly deal required 2U to incur more debt and placed strain on its ability to continue growing; subsequent difficulties have affected its financial health significantly and its CEO acknowledged on this week’s earnings call that 2U has embarked on “a 12-quarter journey” in an attempt to reset.
The Company’s Future
Now, the company is working to alter its business model, shifting away from an approach which typically charges schools 60 percent of tuition towards stackable services that start at 35 percent and offering higher revenue shares to colleges for cooperation.
However, 2U’s current state is creating an air of uncertainty among its hundreds of university and college student users. Inside Higher Ed reached out to various schools who use 2U, but most did not respond to our inquiries for comment.
2U’s recent turmoil has raised serious doubts about the future of online education as a whole, with experts suggesting that many ed-tech companies will have to cut losses and focus on niche markets like professional training instead of mass markets like their predecessor. 2U shows us even well-funded startups can face difficult times and require years to recover fully from them.
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