2U Eyes Profits on Near Horizon

column | Enterprises

2U Eyes Profits on Near Horizon

By Betsy Corcoran (Columnist)     May 6, 2016

2U Eyes Profits on Near Horizon
Universities offering advanced degrees in partnership with 2U.

2U had a crazy week: On the one hand, the Landover, MD-based edtech company, which partners with high-profile universities to offer online graduate degree programs, lost its President. On the other hand, it reported first quarter earnings that showed not just that it was growing--but that it may generate profits earlier than expected.

That financial news is a powerful antidote to the skepticism that continues to shape discussions around online learning. “Our model is working,” declared chief executive Chip Paucek. He said the company first put its effort into building a powerful learning platform for students. Now that work is paying off.

In the presentation the 2U executives made to investors this week, they noted that the company offers advanced degrees in several vertical areas (including business, nursing and data science) across 20 universities. 2U builds and manages the platform for delivering courses, recruits new students, collaborates with the schools to develop content and ultimately help students find internships and jobs. By building synergies across these programs, 2U’s costs for finding new students is falling--and helping drive profits.

Last year, 2U reported $150 million in revenue; in the quarter that ended March 31, the company reported revenue of $47.4 million. Although the company had a net loss of $3.4 million, it noted that its “adjusted EBITDA”--effectively the top line earnings before deducting interest expenses, taxes and depreciation--was positive, suggesting that the company will be profitable (measured by adjusted EBITDA) this calendar year.

A key part of the story: Customer loyalty. In April, 2U’s first customer, USC Rossier, reupped for another 12 years. That means the company has locked down the contracts it hoped to secure for this year and is working on 2017 plans. Paucek called it “another great quarter and a strong start to 2016."

Even the loss of President Jim Shelton was bittersweet. Shelton joined 2U almost a year ago after spending six years in the Department of Education in the Obama Administration. This week, he said he had agreed to lead the education program of the investment-and-philanthropy program created by Mark Zuckerberg and Priscilla Chan.

"We had a bright light for a year and [Shelton] is going to stay an advisor to me," Paucek said. "I can't be more thrilled for Jim. This is truly one of those great opportunities because of the combination of who he is -- and what Mark and Priscilla want to achieve."

Shelton, in turn, praised 2U’s mission, culture and execution. “ I am more convinced than ever that 2U is transforming higher education,” Shelton wrote in a private letter to 2U employees that he shared with EdSurge. “2U is helping universities become better digital versions of themselves and doing so with producing great student outcomes at the core of its mission and model.”

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