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Why 2U, Inc. Stock Jumpd 11.9% in September

By Steve Symington - Oct 4, 2017 at 10:00AM

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The online education platform company rose following a dilutive stock offering. Here's why.

What happened

Shares of 2U Inc. (TWOU -3.92%) rose 11.9% in September, according to data from S&P Global Market Intelligence, after the online education platform specialist priced a new offering of common stock.

Of course, that might not sound encouraging considering such offerings are generally dilutive to existing shareholders -- and this one was technically no different to that end. And to be fair, shares did fall modestly on Sept. 6 after the company initially announced the deal. But 2U stock more than recouped that decline the following day, jumping more than 9% after it priced its offering of 3.65 million shares at $49.00 per share, with a 30-day option for the deal's underwriters to buy up to an additional 547,500 shares at the offering price. 2U, for its part, was poised to collect gross proceeds of $171.5 million.

Man in suit standing on ladder, drawing a yellow chart indicating business growth or success.


So what

Why, then, did 2U stock rebound once the offering was solidified? For one, as I pointed out last month, 2U had momentum on its side following an exceptional second-quarter 2017 report in early August, in which the company confirmed it had already slotted 12 of its targeted 13 program launches for 2018.

"We've always met our annual launch targets, but we've never been so far along this early," added 2U co-founder and CEO Chip Paucek at the time. "As a result, we remain confident in our multi-year launch cadence."

Those program launches tend to be capital-intensive, however, as 2U shoulders the burden of most of the cost structure up front -- though it makes up that difference over the long run by collecting anywhere between 60% and 70% of overall tuition revenue. In addition, note 2U only just closed on its acquisition of premium online short-course specialist GetSmarter in early July, providing a boost to the company's international expansion and push into nondegree alternatives.

In any case, with shares up more than 60% year to date when 2U announced the offering last month (and up more than 90% in 2017 as of this writing), it seemed like a brilliant time to raise the cash required to help fund those efforts.

Now what

2U's next earnings release is slated for early next month. In the meantime, the company should offer more color on its most recent progress with its investor day presentations this Thursday, Oct. 5, 2017. Now flush with cash following last month's stock offering, however, I suspect 2U won't show any signs of slowing down in the near future.

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