2U (TWOU) Q3 Earnings & Revenues Surpass Estimates, Up Y/Y
2U, Inc. TWOU reported third-quarter 2020 adjusted loss of 24 cents per share that was narrower than the Zacks Consensus Estimate of a loss of 27 cents and the year-ago quarter’s adjusted loss of 41 cents.
Revenues of $201.1 million increased 30.7% from the year-ago quarter and beat the Zacks Consensus Estimate by 6.4%. The coronavirus-induced global social distancing norms accelerated demand across all three primary products — short courses, boot camps and degrees.
2U conducted a survey of 1,754 prospective students from Jun 30 through Jul 22, 2020. Of the respondents, 73% said the coronavirus pandemic has made them much more likely (52%) or somewhat more likely (21%) to consider online programs while 20% of respondents said that, in the absence of coronavirus, they would not have considered an online program.
Graduation segment revenues were $122 million, up 18% year over year. Graduate program full course equivalent enrolments in the reported quarter increased 17% year over year to $47.8 million. Graduate programs average revenues for full course equivalent enrolment increased 1% year over year to $2.5 million.
2U, Inc. Price, Consensus and EPS Surprise
Revenues in the Alternative Credentials segment totaled $79.1 million, up 57% year over year. Alternative Credential program full course equivalent enrolments in the reported quarter surged 57% year over year to $23 million. However, Alternative Credential average revenues for full course equivalent enrolment declined 10% year over year to $3.4 million.
During the quarter, Northwestern University opened enrolments for an online short course to help professionals across private industry, government, and civil society to lead in more inclusive and equitable ways. The six-week short course, Leading Diversity, Equity, and Inclusion, will be offered in partnership with GetSmarter, a brand of 2U.
Meanwhile, Boot camp revenues grew 54% year over year, reflecting an uptick in enrolment of several new offerings and strong uptake across subjects. During the quarter, The Ohio State University's College of Engineering launched its first coding boot camp in partnership with 2U. Additionally, Emerson College launched a data analytics boot camp in partnership with 2U.
Additionally, Columbia Engineering and the University of Pennsylvania College of Liberal and Professional Studies started offering the first online coding boot camps for high school students in partnership with Trilogy Education, a brand of 2U.
Moreover, in third-quarter 2020, 2U partnered with Columbia Engineering to deliver the Columbia Artificial Intelligence Program, a rigorous online executive curriculum designed to advance the next generation of technology leaders. This is expected to create an additional revenue stream for the company.
Further, the company’s recent partnership with Colgate University will allow the University access to 2UOS Essential — 2U's bundle of course production and development, technology, and support services — to deliver a high-quality, hybrid learning experience for select courses.
Curriculum and teaching and servicing and support expenses increased 41.3% and 19% year over year to $30.2 million and $32.2 million respectively.
Additionally, technology and content development and sales and marketing expenses increased 17.8% and 7% year over year to $40.2 million and $100.1 million respectively. Moreover, general and administrative expense increased 4.7% year over year to $44 million.
Adjusted EBITDA was $3.7 million against a negative adjusted EBITDA of $10.7 million reported in the year-ago quarter.
2U incurred operating loss of $45.9 million in the reported quarter compared with loss of $134.9 million in the year-ago period.
Balance Sheet & Cash Flow
As of Sep 30, the company’s cash, cash equivalents and restricted cash totaled $499.6 million compared with $213 million as of Jun 30, 2020.
As of Sep 30, 2020, cash used in operating activities was $6.8 million compared with $6.6 million used in the previous quarter.
For the full year, the company expects total revenues to range from $760-$775 million, suggesting growth of 32%-35%.
Net loss is expected in the range of $210-$225 million. Adjusted EBITDA is expected to be in the range of $7-$14 million.
Zacks Rank & Stocks to Consider
Currently, 2U carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader technology sector include Alphabet Inc. GOOGL, Square, Inc. SQ and Covetrus, Inc. CVET, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Alphabet, Square and Covetrus are set to report their quarterly results on Oct 29, Nov 5 and Nov 10, respectively.
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