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Why 2U Stock Plunged 37.2% in May

By Steve Symington – Jun 4, 2019 at 8:33PM

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The online education company beat quarterly estimates but still lowered its outlook. Here's why.

What happened

Shares of 2U (TWOU 0.66%) fell 37.2% in May, according to data from S&P Global Market Intelligence, after the online education platform company announced strong first-quarter 2019 results, but lowered its full-year revenue guidance.

In particular, 2U stock plummeted over 20% on May 8 alone, after the company confirmed its quarterly revenue had soared 32.4% year over year to $122.2 million, translating to an adjusted net loss of $8.6 million, or $0.15 per share. Both the top and bottom lines exceeded 2U's own financial guidance, which called for a per-share loss of $0.18 to $0.19 on revenue of $121.5 million to $122.1 million.

Woman working on a notebook computer.


So what

2U launched a number of new graduate courses this quarter, including a Master of Science of social administration at Case Western Reserve University and two new healthcare-centric hybrid degrees at Arcadia University. The company also highlighted its $750 million acquisition of tech "boot camp" leader Trilogy Education, which closed late last month and -- coupled with its previous acquisition of short-course company GetSmarter in 2017 -- will further expand its reach in the non-degree alternative credentials niche.

"Our business is transforming and diversifying in exciting ways that further cement 2U's market-leading position and allow us to better meet the needs of lifelong learners, all while delivering sustainable growth and great outcomes in shared alignment with our partners," stated 2U co-founder and CEO Chip Paucek.

Now what

Looking forward to the full year, however, 2U modestly reduced its outlook to call for revenue of $534 million to $537 million, compared with $546.6 million to $550.8 million before. According to Paucek, the company has seen enrollments decline around 20% at its five largest programs over the past couple of years -- albeit from an unusually high starting point, which now brings those programs' latest numbers closer to the company's initial target for 300 to 500 new students apiece.

Investors can take some solace knowing 2U's overall enrollments are still climbing (up 3% overall). It also helps to recall that, at the time of 2U's IPO in 2014, just two programs at a single school represented around 75% of its total revenue. Even outside its non-degree alternative offerings, today the company boasts scores of graduate programs at dozens of universities.

So while the market didn't take too kindly to 2U's lowered outlook, I think this is a perfect opportunity to buy shares of a business whose long-term remains firmly intact.

Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends 2U. The Motley Fool has a disclosure policy.

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