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K12 May Benefit From Push to Online Education

By Pearl Wang – Jul 23, 2020 at 9:11AM

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As some U.S. school districts push back reopening plans, there's increased demand for companies that support online schooling.

K12 Inc. (LRN 0.17%), a leader of online and blended education, may benefit as increasing numbers of public school districts in the U.S. are implementing a mix of online and blended classes. Due to COVID-19, some states are planning to stay closed for longer periods, resulting in schools moving classes online. Another positive sign indicating revenue growth opportunities for K12 is its recent announcement that it would hire an additional 1,300 educators for the 2020-2021 school year. The stock could be a good investment given the move toward online learning in the U.S.

Two children taking part in a homeschooling lesson.

Image Source: K12

The education company may get a boost from increased interest in online education

The education company has growth potential as education increasingly shifts to a mix of online and in-person learning. With the ongoing concerns over COVID-19, higher numbers of schools are embracing virtual learning. Some parents may prefer virtual learning if they want to have more control over the environment where their children learn. Parents may be also be concerned about COVID, bullying, or want to have more say in how their kids learn. CEO Nathaniel Davis commented on the third-quarter earnings call: "We reached nearly 1 million unique visitors to the website in February and March, which is a 49% increase year-over-year."

This trend could continue to boost the revenue of the for-profit education company. The majority of K12's revenue (88% in 2019) comes from Managed Public School Programs, which offers academic support services, learning systems, administrative support, and information technology for virtual or blended public schools. Their market is focused on K-12 education levels.

K12 is on a hiring spree

The company announced plans on July 15 to hire over 1,300 educators for the 2020-2021 academic year. Currently, K12 has over 6,000 educators on its staff. This push to hire additional staff indicates that the company is expecting greater demand. These educators are trained to administer standards-aligned curriculums and programs online. The education company believes that its programs give teachers an option of working from "the comfort and safety of home while being supported by a team with two decades of experience in online instruction."

Public education shifts could lead to customer acquisition

Research group Citron sees big shifts in public education resulting from COVID-19 closures and attempts to stop the virus spread. This increase in remote learning could boost demand for K12's services and products. While most states have reopened many businesses and public facilities, some states, such as California, have reversed the openings. Other states are reopening more cautiously in stages.

The superintendent of Broward County, FL, the sixth-largest district in the U.S., recommended remote learning for its schools in the upcoming season because of COVID-19. Los Angeles and San Diego, two large districts in California, plan to have 100% online teaching. Schools in these areas could become potential customers of K12.

Overall, there are macro tailwinds supporting K12's revenue growth. There's a push toward remote learning or a combination of remote and in-person education. While this has been an ongoing trend, the recent COVID-19 concerns have led to even greater interest from schools and parents. K12 may be a good investment as it's well positioned for the current increased demand for online education and virtual schooling.

Pearl Wang has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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