In this segment of the Industry Focus: Consumer podcast, host Vincent Shen and Motley Fool contributor Asit Sharma dive into 2U Inc (NASDAQ:TWOU), a provider of online learning technology to some of the most prestigious schools in academia. To gain an overview of this up-and-coming education tech company and its unique advantages, simply click on the video below.
A full transcript follows the video.
This video was recorded on Sept. 19, 2017.
Vincent Shen: Up next, we have another tech-focused, fast-growing name in education that's helping students as well, but in this case, it's by allowing them to get their degrees online. The company is called 2U, ticker TWOU. We already mentioned at the beginning of the show that we wouldn't be covering the more controversial for-profit universities and online programs. Even though we're connected online constantly through our smartphones, through social media, and a lot of other platforms out there, online education still has to grapple with more negative connotations.
But I think that is also what makes 2U really unique. This company is partnered with over 20 schools, and its roster includes some very prestigious names like Georgetown, New York University, Harvard and Yale. 2U maintains a focus on very specific graduate programs like business or nursing. The hope is to attract students who want to further their education and their career opportunities without uprootin their entire lives, so they'll have a preference for an online program. The programs that the company offers through these schools are a mix of pre-recorded content and live classes where students can see each other. They can still give presentations, ask questions, and participate as they would in a traditional classroom experience. They're trying to recreate that online. The company's motto is "no back row". Class sizes are very reasonable, they average 12 students. In the end, students will earn the same degree as their counterparts who actually attend the school in person. The students, through 2U's partner programs, generally pay the same tuition, as well.
Asit, I'll turn it over to you again. What parts of this business really stand out to you?
Asit Sharma: First of all, 2U -- listeners, if you're looking this up, Vince gave you the symbol, it's TWOU -- if there's anybody today from the marketing department of 2U who happens to be listening, we feel your pain. I believe there's a song that's featuring Justin Bieber which has now taken the top of the Google results. If you try to google this, you're going to get a Justin Bieber video. You have to scroll down, use that scroll button to find it. It's worth looking up.
Shen: [laughs] Yes, I noticed that as well.
Sharma: [laughs] The most recent quarter, revenue for 2U is up 32% to $65 million. That leaps out at you. This is a fast-growing company. How it's been able to do this is the partnerships that Vince mentioned. It has a very strong pipeline. The company tends to look one to two years ahead to author new programs. What I mean by a program is an online offering with a reputable school which is an extension of their existing curriculum or a brand new program.
A really prominent example that the company just announced is a new certification through the Harvard Business School, it's called the Harvard Business Analytics Program. In many cases, 2U is partnering up, suggesting a totally new program or persuading a university to take an existing program, tweak it, and offer this online version. And it's a much more sophisticated approach than we've seen universities themselves be able to put out. It is more geared toward profit-making. Some of you may have taken MOOCs, which are massive online open courses. I hope I got the sequence of that right. Universities have proven to be very interested in the online learning model. They participated in the MOOCs in the past few years to build a familiarity with offering distance education. But 2U takes it quite a few steps further. The first advantage they have is, as Vince mentioned to me when we were chatting about the show, he said it's really a technology company more than anything else. And you can see that in their CMS, which is their content management system. It's the combination of real time, synchronous learning with educational pieces that are there that you can link to and get more in-depth on a subject. Some of you who have taken online courses may have counted on the Blackboard system, which was a pioneer for many years. This is Blackboard on steroids, really.
Beyond that, for a university to offer a degree program like this online, there has to be something in it for the university that helps them make money off their model. And what distinguishes 2U is, its back end is second to none. The company offers a host of analytics to colleges that help them acquire new students, it helps them churn statistics on what's working and what's not, it provides back-office functions, and all this is offered as software-as-a-service. So it's cloud-based, it's very easy to utilize. It's another revenue stream for the company. What I see in 2U versus other entities which have tried to provide distance education, online education, is a really technology-based approach which pays dividends for both the students and the colleges. It puts analytical tools in the colleges' hands, which they didn't have before and really don't have the wherewithal to develop on their own.