Wall Street Receives 2U’s Purchase of edX with Gains

IBL News | New York

While MIT’s and Harvard’s nonprofit edX and publicity traded 2U Inc (NASDAQ: TWOU) continue promoting the advantages of its $800 million deal, the capital markets remain moderately optimistic.

Since the announcement of the purchase of edX’s brand and nearly all of its assets (on June 29th), the stock is up around 4%, to $42.22 — as it closed this Friday, July 2.

The market capitalization is $3.14 billion, still far beyond competitor Coursera, with $5.72 billion.

Edward J. Maloney and Joshua Kim academic experts wrote that “the No. 1 reason as to why this deal is happening, it would be Coursera.”

“A well-capitalized online platform company like Coursera represents a potentially existential threat to the traditional online program management model, at least in the medium to long term.”

In addition, 2U and similar OPMs (Online Program Manager) companies spend around 20% of their revenue on client acquisition (paying students), while Coursera’s 80 million global learners allow them to spend considerably less. edX claims to host 39 million registered learners.

Driving down student acquisition costs, by turning free or low-cost students into paying customers, would allow 2U to scale more rapidly and at a lower cost.

Coursera can be a strategic threat to existing OPMs, by offering bundled (OPM-like) services, such as instructional design, project management, media, and marketing.

Regarding edX, MIT and Harvard’s executives implicitly admitted that Coursera’s successful IPO and its well-capitalized strategy made it difficult for a nonprofit to fully compete in the platform space.

After paying $800 million in cash, education technology provider 2U plans to offer more than 3,500 programs to some 50 million customers globally. The transaction is expected to close in the fall, following regulatory and governmental approval.

2U did warn that the acquisition could lower its EBIDTA (earnings before interest, taxes, depreciation, and amortization) by a low single-digit percentage on an adjusted basis in 2022. It expects the edX assets will add to earnings in the following year.

edX will continue to be a public-benefit entity under the umbrella of 2U, allowing ongoing free class auditing and credentials for those seeking lower-cost degrees.

Analysts said that rising higher education costs make offerings, like edX attractive to students seeking alternative, lower-cost degrees, and certification.

The shift to remote learning, due to the COVID-19 pandemic, has been a boon to Chegg and 2U, two publicly traded education technology companies that provide everything from tutoring services to online curriculums.



[Disclosure: IBL Education, the parent company of the IBL News service, uses Open edX software on its platform, and provides custom ecosystems to organizations mentioned in this report and others firms.]