Will Virtual Learning KO the Education Gap?

In Chicago last year, a group of 60 former dropouts went back to school and got their diplomas. That fact alone might be nothing special, but these young men and women attended a virtual high school, taking classes entirely online.

CEO Ron Packard believes this is just one of the many opportunities his company, K12 (NYSE: LRN  ) , can provide. Packard, who spoke at Fool HQ last week, explained that the Internet has revolutionized so many industries, but its impact on education has been relatively limited. K12 seeks to change that.

Unlike for-profit colleges such as the University of Phoenix -- a subsidiary of Apollo Group (Nasdaq: APOL  ) -- and DeVry (NYSE: DV  ) , K12, as its name would imply, focuses on primary- and secondary-school students.

K12 is the largest company in that market and has built its business primarily on contracts from public schools. As school districts nationwide increasingly face shortfalls in a down economy, K12 provides one solution for cost savings because per-pupil costs are generally less at virtual schools than at traditional schools.

CEO Packard, however, thinks the potential for K12 is much larger and one day may be able to affect developing parts of the world such as sub-Saharan Africa, a region that often lacks the resources to build brick-and-mortar schools. To him, this is a leapfrogging technology, and he explained how in those parts of the world many people don't have access to many basic necessities but still may have cell phones. "All you need is a smartphone," he said, to unleash the power of online learning.

Packard also challenged the American school system. He argues that even though we live in the information age, our school schedule is still based on an agrarian economy, with letting kids out at 3:00 and giving them summers off. He pointed out that in addition to the benefits extended hours would provide for students, a school day that ran until 5:00 would fit in much better with parents' schedules. But he acknowledged the resistance to change within the school system, in Washington, and in other seats of power. "Everybody wants change as long as it stays the same," he said. In contrast, he said, K12 is designed to take risks and seek transformational change.

Packard's ambitions may be admirable, but it remains to be seen whether online education will become more than just a niche industry. The for-profit college sector has come under scrutiny lately, and a recent profile in The New York Times has called K12's practices into question. For investors as well, the jury is still out. After closing at $24.55 on the day of its 2007 IPO, K12 trades at roughly the same price today, and with its P/E of 59, investors are clearly expecting straight A's from the online educator. Add it to My Watchlist and stay up to date on all the relevant news and events.

Fool contributor Jeremy Bowman holds no positions in any of the companies listed here. Motley Fool newsletter services have recommended buying shares of K12. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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