2U, Inc. Ends the Year Strong, Looks to Accelerate New Launches

The online education platform specialist easily exceeded guidance in the fourth quarter. Here's what investors need to know.

Steve Symington
Steve Symington
Feb 24, 2017 at 8:00AM
Technology and Telecom

2U Inc. (NASDAQ:TWOU) reported stronger-than-expected fourth-quarter 2016 results Thursday after the market closed. The online education platform company easily outpaced its latest guidance on both the top and bottom lines, with margins continuing to improve in its path to sustained profitability. 

Let's grab our pencils, then, and take a closer look what drove 2U's results as it finished the year, as well as what investors can expect from the company going forward.

Student wearing headphones working on a laptop computer


2U results: The raw numbers


Q4 2016

Q4 2015

Year-Over-Year Growth


$57.4 million

$43.3 million


GAAP net income (loss)

($2.2 million)

($3.4 million)


GAAP earnings (loss) per share




Data source: 2U Inc. 

What happened with 2U this quarter?

  • On an adjusted (non-GAAP) basis, which adds perspective by excluding stock-based compensation, 2U's generated net income of $2 million, or $0.04 per share, compared to a an adjusted net loss of $0.1 million, or roughly breakeven on a per-share basis in last year's fourth quarter.
  • Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was $4.5 million, up from $1.9 million in the same year-ago period.
  • Each of the above figures exceeded 2U's latest guidance, which called for revenue in the range of $56 million to $56.4 million, positive adjusted EBITDA of $3.8 million to $4.2 million, a GAAP net loss of $3.5 million to $3.1 million (or $0.07 per share to $0.06 per share ), and adjusted net income of $1.1 million to $1.5 million (or $0.02 per share to $0.03 per share).
  • Earlier this week relocated 2U's headquarters to a new facility in Lanham, Maryland, to accommodate rapid growth. 2U aims to create over 900 jobs in the area within the next five years.
  • Recently announced partnerships include:
    • A new online Master of Business Administration program through Dayton's School of Business Administration
    • A new online Master of Information and Cybersecurity (MICS) program through UC Berkeley, School of Information.
    • A new online master of legal studies (MLS) from Pepperdine University School of Law, and a suite of online degrees in psychology through the Pepperdine University Graduate School of Education and Psychology.
    • Two new online degrees with Vanderbilt University, including a Master of Education in school counseling, and a Doctorate in Education in leadership and learning in organizations.

What management had to say

According to 2U CEO Chip Paucek:

We once again produced strong financial performance for both the fourth quarter and full-year 2016.  Both periods showed significant year-over-year revenue growth as well as continued margin progress in each of our earnings measures. 2016 was the year that the first of our three earnings measures, adjusted EBITDA, turned positive, which is the result of having an increasing number of programs progressing toward and reaching steady state margins. Additionally, the launch cohort margins we reported for the year are further validation that mature programs can achieve the long-term steady state margins we target in the time frames we expect.

Paucek added that the company has announced a full slate of 10 program launches in 2017 -- one more than the company initially promised at the start of last year. 2U also maintains a target of at least 12 program launches in 2018.

Looking forward

For the first quarter of 2017, 2U anticipates revenue in the range of $63.6 million to $64 million, positive adjusted EBITDA of $2.9 million to $3.2 million, a GAAP net loss of $4.1 million to $3.7 million (or a loss in the range of $0.09 per share to $0.08 per share), and adjusted net income of $0.1 million to $0.4 million (equating to an adjusted range of roughly breakeven to a penny per share).

Finally, 2U expects full-year 2017 revenue of $267.6 million to $269.8 million, a GAAP net loss of $28 million to $25.6 million (or $0.58 per share to $0.53 per share), and an adjusted net loss of $7.2 million to $5.2 million (or $0.15 per share to $0.11 per share).

By comparison -- and though we don't usually pay close attention to Wall Street's demands -- analysts' consensus estimates predicted a 2017 adjusted net loss of $0.11 per share on revenue near the low end of 2U's expected range.

To be fair -- and as I discussed with Paucek shortly after 2U's IPO in 2014 -- we should keep in mind new program launches are significant investments for the company, as 2U absorbs most of the cost structure of each launch in exchange for the lion's share of tuition revenue over the life of its long-term contracts. As such, with 2U's higher-than-expected revenue guidance for the coming year, it shouldn't be terribly surprising the company projects a slightly wider bottom-line loss than investors were anticipating. 

In the end, this was a strong quarter from 2U, which remains a promising long-term bet for investors while maintaining its ultimate goal of achieving sustained, profitable growth.