I've been following for-profit education companies for the Fool for almost a year. By now, I thought I had identified all the major players from Career Education (NASDAQ:CECO) to Corinthian Colleges (NASDAQ:COCO), from Apollo Group (NASDAQ:APOL) to ITT (NYSE:ESI). I was wrong. Yesterday, along came a company working in a related sphere that I had never even looked at, and it dropped a bombshell on the market.
eCollege's (NASDAQ:ECLG) business is providing outsourced technology solutions for both for-profit and not-for-profit providers of online education. In other words, it creates the programs that enable an online educator to register students for courses, assign homework, keep track of grades, and everything in between. In this respect, the company is a lot like competitors VCampus (NASDAQ:VCMP) and brand-new offeringBlackboard (NASDAQ:BBBB).
Yesterday, eCollege announced its second-quarter results with the always-worrisome headline "record profits." And indeed, revenues did rise 186% to reach $20.9 million. However, only 18% of that increase was what you could call organic growth. The rest came from its new enrollment division, Datamark, which eCollege acquired last year. On the profits front, the company earned anywhere from $0.03 to $0.10 per share, depending on how you account for stock options expenses and what flavor you prefer to receive your profits in: net earnings, pro forma earnings, adjusted earnings, or adjusted pro forma earnings. eCollege offers an EPS number for every taste. For itself, however, the company can't make up its mind and warned investors that it will be delaying filing its second-quarter 10-Q form with the SEC while it ponders the right choice.
This kind of confusion makes it terribly difficult to value a company, and eCollege's decision to delay filing the 10-Q certainly didn't help matters. To add injury to insult, eCollege warned investors that its third-quarter earnings would probably fall short of the Wall Street consensus of $0.13 worth of "adjusted net income." Meanwhile, from a straight net income perspective, eCollege predicts just a penny or two of profits for the next quarter.
Moreover, the disappointment is expected to last through the rest of the year. eCollege predicts full-year 2004 earnings will end up about 40% below its previous guidance, at something like $0.13 to $0.16 a share, giving the company a forward P/E of at least 58 at Monday's closing share price. Result: eCollege's stock fell nearly 25% yesterday, ending at just less than $7 (for a still-pricey P/E of at least 44).
Fool contributor Rich Smith owns no interest in any of the companies mentioned in this article.
