What happened
Shares of 2U (TWOU +0.00%) were down 24.3% as of 11:00 a.m. ET Wednesday, according to data provided by S&P Global Market Intelligence, after the online education platform company announced disappointing second-quarter 2023 results.
Quarterly revenue fell 8% year over year to $222.1 million, translating to an adjusted net loss of $14.4 million, or $0.18 per share. Analysts, on average, were expecting a much narrower net loss of $0.07 per share on higher revenue of $234 million.
Key Data Points
So what
2U co-founder and CEO Chip Paucek noted that their edX subsidiary -- which the company acquired in late 2021 -- generated 44% of its organic leads during the quarter. Still, 2U has struggled to bolster its top line as it focuses on marketing and operational efficiency.
Though marketing and sales expense as a percentage of revenue declined 9 percentage points this quarter, revenue fell as a 4% increase in the Alternative Credential segment this quarter (to $102.6 million) was more than offset by a 16% decline in Degree Program segment sales (to $119.5 million).
But that could change in the coming year.
"Notably, in 2024 we plan to nearly triple our new degree launches compared to our highest launch year with at least 50 new, capital-efficient programs," Paucek added. "We expect this momentum to continue in future years given the strength of our pipeline, popularity of our flex degree model, and promise of our flat fee model."
Now what
"Our results in the second quarter reflect a shift in timing of planned second quarter revenue to later in the year," explained 2U CFO Paul Lalljie. "Based on the strength of our platform strategy and robust pipeline, we are affirming our revenue guidance while increasing our adjusted EBITDA outlook."
In the meantime, 2U reaffirmed its previous outlook for revenue ranging from $985 million to $995 million, or growth of 3% at the midpoint and roughly in line with analysts' estimates. But 2U simultaneously lowered its profitability guidance, calling for a full-year 2023 net loss of $225 million to $220 million -- a massive difference from previous guidance calling for a loss of $93 million to $87 million.
2U also slightly raised its outlook for 2023 adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to be in the range of $160 million to $165 million (up 30% year over year at the midpoint, compared to previous guidance for 28% growth).
In the end, 2U is telling investors its relative shortfall in the second quarter resulted from a purposeful strategy to shift revenue to later in the year and teasing of a significant ramp in degree programs next year. But it's hard to ignore the significantly increased net loss outlook for 2023 in the meantime, and investors are understandably growing tired of waiting for 2U to deliver on its years-long promise of disrupting higher education as we know it.
Until we start to see some more tangible evidence of a sustained return to growth and march toward true profitability, I suspect its share price will continue to struggle.
