2U - The Underpriced Ed-Tech Company Targeting A Multi-Trillion Dollar Market

 2U (TWOU) is generating the bulk of their revenues by partnering with universities and offering online degrees. Last quarter's revenues were $201M. $122M of which were generated through their Graduate programs & $79M through boot camps and short-courses.

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Short courses grew with 60% YoY and boot camps with 54% YoY. The market underappreciates these revenue segments. However, these revenue streams are growing quickly and are diversifying 2U's business model.

According to the CEO, boot camps & short courses will continue to grow due to companies' huge demand. The TAM of 2U is, therefore, the global education & training expenditure market. If they can capture just one % of this market, this would already be more than $60bn.

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Why is 2U in a prime position to harvest this market?

They are partnering with lots of prestigious universities. These are just some of them:

Harvard, MIT, University of Cambridge, Yale, Berkeley, University of Oxford, Stanford, Johns Hopkins University, Columbia University, NYU

If 2U is good enough for the Ivy league, it is likely that lots of less prestigious universities will follow. You might think: Why are universities not enabling online education on their own?

2U helps students to find placements all over the world.

In an age where students can study from everywhere, it is rather difficult for the individual university to have connections worldwide in order to offer placements. 2U can provide a vast network, experience, and time savings for universities.

Profitability

2U is not profitable yet. This is partly due to how their business model works. Their highest expense is advertising, which is generating future revenues. A lot of their programs are five or more years long, and revenues are not generated upfront.

Hence, with economies of scale kicking in this will change. The trend of their net income during the last quarter already showed this. It will be interesting to see how their net loss will look like today (the bright yellow bar is just a forecast).

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Conclusion

Covid acts like a catalyst for online education. Nevertheless, the education space is still underappreciated by investors. 2U especially is underpriced besides their pole position & enormous TAM.

To see a scenario analysis and our calculated fair value check out our Youtube video below.

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