What happened
Shares of 2U Inc. (TWOU +0.00%) were up 10.6% as of 3:00 p.m. EDT Thursday, after the online education platform company priced a public offering of common stock.
For perspective, today's move was partly a rebound from a more modest decline yesterday; 2U stock understandably fell as much as 5.5% in Wednesday's trading, and then settled to close down around 2.4% after the company first proposed a dilutive offering to consist of 3,000,000 shares offered by the company, and 150,000 shares offered by selling stockholders. The deal's underwriters also had a 30-day option to purchase up to 472,500 additional common shares from 2U.
Today, however, 2U more than recouped yesterday's decline after announcing the offering had been priced at $49.00 per share and increased to 3,650,000 shares, including 3.5 million from the company and 150,000 offered by the selling stockholders. 2U also increased the size of its underwriters' 30-day option to purchase up to an additional 547,500 shares at the public offering price. 2U should receive gross proceeds of $171.5 million from its portion of the deal.
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So what
Make no mistake: This is a dilutive stock offering that, if exercised in total, represents more than 9% of 2U's overall float, which is why shares fell following the initial announcement.
So why is the market celebrating the news? First, 2U's $49-per-share offering price isn't usual, as it's only slightly below yesterday's closing price of $49.43. But we should also keep in mind that 2U stock has climbed an impressive 80% so far in 2017, helped by a streak of strong quarterly reports as the company accelerated new program launches. So it seems like a great time for the capital-intensive, yet-to-be-profitable business to raise cash.
2U also states that the proceeds will be used for "general corporate purposes, including expenditures for program and short course marketing, technology, and content development, in connection with new program and short course launches and growing existing programs and short courses."
Earlier this year, 2U shelled out $103 million, plus $20 million in potential earn-out payments, to acquire premium online short course company GetSmarter, stating that the purchase would accelerate the overall company's expansion into international markets and non-degree alternatives.
Now what
2U won't formally release its next quarterly results until early November. But so far in its brief tenure as a publicly traded company, it has proved to be more than capable of fulfilling its promises and putting shareholders' cash to good use. So while it might be surprising at first to see the stock rise following this big offering, it's equally unsurprising to see the market bid up 2U stock as it digests what this could mean for the company's future.
