Has 2U Turned the Corner? Quarterly Reports Show Improved Revenue and the Stock Surges 11%

IBL News | New York

The 2U (NASDAQ: TWOU) stock saw this Friday a surge of 11.39% to $25.33 per share, as the investors were surprised with the educational company quarterly reports, which registered a loss of $0.18 per share versus the Zacks Consensus Estimate of a loss of $0.22.

2U posted revenues of $163.18 million for the quarter ended December 2019, surpassing the year-ago revenues of $115.10 million. The company expects to generate sales between $170 million and $180 million in the current quarter and between $725 million and $750 million for the full year 2020; consensus expectations are for $172.45 million and $729 million, respectively.

So far, 2U has underperformed the market, with the shares losing 8.8% since the beginning of the year versus the S&P 500’s gain of 3.2%.

In the last year, shares have lost more than half their value. They were hit by an August announcement that the company was lowering its near-term growth expectations prompted investors to question whether 2U was a long-term growth stock.

Ahead of this earnings release, the estimate revisions trend for the 2U stock price is mixed. In its forecast for 2020, the education company said it expects full-year adjusted EBITDA to range from a loss of $5 million to a gain of $10 million.

During the Q4 Earnings Call [Transcript here], Christopher “Chip” Paucek, Co-Founder and CEO at 2U, was bullish.

“2U is starting 2020 with tremendous momentum. We had a strong finish in 2019 and we are excited to see what’s happening. Universities are launching more with us. Our degree business is turning the corner. Our short course business is sliding new courses and enrolling students in record numbers and our boot camp business is starting to deliver on the strategic value of our acquisition. As we move through 2020, we will improve our operational efficiency with continued realignment and short corporate hygiene.”

“Looking to the future, university demand for our full investment revenue share model is strong and we are managing our launch cadence to optimize growth, cash flow and profitability. Add all this up and we are expecting double-digit revenue growth and increasing segment profitability in 2020,” added the CEO.

2U launched 15 new degree programs in the quarter, claiming that it achieved an 82% student retention rate in the segment.

“In conclusion, 2019 was challenging. But last year we took actions to deliver long-term value for all of our stakeholders. Our grad business is turning for the better. We added a product line that opens a significant new segment of the market. We more than doubled our client base and currently have a portfolio of over 400 product offering. We delivered strong second half results and we believe we turned the corner going into 2020. 2U expects to maintain industry-leading growth, while delivering margin improvement over the course of 2020 and driving toward positive free cash flow, all with a relentless focus on quality and outcomes,” said Christopher “Chip” Paucek.

Regarding the sale rumors spread by activist investors, 2U’s management declined to comment.