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.
Video length 00:14:24
Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any particular ...
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Quite interesting, on the verge of exciting, even. An on-line educational organization that appears to be good enough to partner with the notables. Of course a lot of details are not mentioned here, but then this is about the profitability of the business, not an ad for the products.
Certainly good education is valuable and thus quite marketable, and certainly the mechanics of doing it are far from simple. And clearly 2U has discovered a process that works well. Many others appear to have not done so well.
So it does seem that this will be a growing profitable organization.
Thanks for the post!
Thanks Robert, this is quite interesting as I was not familiar with #2U. But what is so special/unique about this company? Do they have some proprietary technology that is not easy to replicate? As you said, if they become profitable, wont' Universities simply offer online degrees themselves and cut out the middle man? Or have other, better funded startups squeeze them out of the market? Interesting in hearing more about $TWOU.
Here is the video providing more insights, interesting charts & a scenario analysis:
www.youtube.com/watch
Much appreciated Robert, I'm watching the video on $TWOU now.
2U is in the pole position. It takes a lot of time to build up a relationship with the Ivy League universities. Moreover, they have partnered with many hospitals to offer placements. This is hard to replicate for Universities.
The market is also big enough for several players. I like the stock so much because you can get it for a reasonable price & they are working on a better future.
Well with Covid, now is the time for online degrees. And I expect that trend will continue long beyond the pandemic.
While I agree, it seems remote education is not a very effective solution long-term. Many students literally lost a year of learning. Universities really need to find a way to better educate remotely. If $TWOU found out a way to do that, it can go far.
There are some disadvantages to online education. However, there are also a few advantages to it that I didn't mention in this article.
I published my first youtube video today. In which you will be able to find a few more details ;)
https://youtu.be/FtPyREb2J0U