Analysts Watch for Coronavirus Impact on Edtech Stocks

Edtech Business

Analysts Watch for Coronavirus Impact on Edtech Stocks

Mar 5, 2020

BMO Capital Markets, an investment bank, said in a report Monday that some publicly traded online education companies might see an influx of students because of COVID-19. Online education has previously proven a temporary help to schools closed due to natural disasters, like Hurricane Katrina in 2005 and Hurricane Sandy in 2012.

“While we are uncomfortable citing ‘winners’ in the coronavirus situation, some companies may be positioned better than others,” according to the note. “Specifically, those that specialize in online education could see increased interest should the situation worsen.”

Most schools in the U.S. will rely on their existing technology providers, such as Google and Microsoft, should they decide to move students’ classes online.

For the 2017-to-2018 school year, about 300,000 students—or .5 percent of all U.S. K-12 students—were enrolled in full-time virtual schools.

According to the note, bumps in enrollment are unlikely to be long-term. “While some may decide to keep them in these schools for longer periods, we envision most would send them back to traditional schools, if they are convinced those schools are once again safe, so these virtual schools may see only some limited benefits,” according to the note.

Publicly traded company K12 owns 40 percent of the market, with Pearson-owned Connections Academy as the second largest for-profit operator in the space. K12’s stock rose 21 percent in the two days leading to the note’s publication, according to the author.

For parents to switch their children into a free, publicly funded virtual school, they need to reside in one of the 39 states with fully virtual or blended schools. Parents outside those states would have to pay a company like K12 for enrollment. Those companies would need to withstand the sudden surge of students and need for teachers.

K12 published a statement Tuesday to remind schools, districts and parents that it has helped in previous disasters. In 2016, flooding in Baton Rouge, La., led to students enrolling at the Louisiana Virtual Charter Academy, a partnership between K12 and the Community School for Apprenticeship Learning nonprofit. In 2018, Hurricane Florence forced families to evacuate homes and use K12’s North Carolina Virtual Academy for remote learning.

In higher ed, 31 percent of graduate students and 14 percent of undergraduate students are in fully online programs, with 81 percent of those programs handled by nonprofits, according to the note. If studies are disrupted for the entire semester, companies like Strategic Education (owner of Strayer and Capella universities) and 2U could see an increase in student users, particularly at the undergraduate level, where transferring credits is more common.

    

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