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Why 2U Stock Dropped Today

By Evan Niu, CFA - Apr 20, 2020 at 1:02PM

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The education tech company reported preliminary first-quarter results and announced a debt offering.

What happened

Shares of 2U (TWOU -0.77%) have dropped today, down by 7% as of noon EDT, after the company reported preliminary first-quarter results. 2U also announced a proposed offering of convertible notes.

So what

Revenue in the first quarter should be $175.5 million, within the company's guidance of $170 million to $180 million. That should translate into a net loss of $60.1 million, compared to the education tech company's outlook of $60 million to $70 million in red ink. Adjusted EBITDA will be around negative $4.3 million, which was much better than expected.

Student watching teacher on a laptop screen

Image source: Getty Images.

2U also outlined steps it is taking in response to the COVID-19 pandemic, including shifting all campus-based experiences to online formats, transitioning course production capabilities to allow teachers to record virtually, and providing more training to university faculty to assist in online teaching, among others.

Now what

"As we move forward, we remain committed to maintaining our disciplined approach to managing capital and expenses in this uncertain environment, while continuing to further cement our market-leading position. We have continued to constrain any unnecessary spending and tightened our use of cash even further," CFO Paul Lalljie said in a statement.

2U is seeking to raise $300 million in convertible senior notes that will come due in 2025 through a private offering to qualified institutional investors. The terms, such as conversion rate and interest rate, have not been finalized yet. Convertible note investors often short the underlying stock as part of an arbitrage strategy, which may be contributing to selling pressure today.

Evan Niu, CFA 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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