It seems like a perfect combination: education and the Internet. Yet for some e-learning companies, it has been quite difficult. Take a look at SkillSoft (NASDAQ:SKIL). Despite a strong product offering and customer base, the stock has floundered.
Another one experiencing difficulties is eCollege (NASDAQ:ECLG). After hitting a 52-week high of $18.18, the stock is now at $9.07.
Yesterday, the company released its quarterly report. The company tallied a record $23.8 million in first-quarter revenue, up 21% from the same period in 2004.
Even though the company sustained significant compliance costs from Sarbanes-Oxley, it still earned a net profit of $600,000, which was up from $64,000 in the same period in 2004. During the first quarter, free cash flow was $1.8 million.
Essentially, eCollege provides outsourced e-learning solutions for post-secondary education. Such students typically have jobs that leave them little time to spend in a physical classroom, so an e-learning solution makes a lot of sense. eCollege provides a complete suite of services that allow for fully online degrees and certificate programs.
For example, DeVry (NYSE:DV) uses the eCollege system for its online offering. Moreover, Educational Testing Services (ETS), the world's largest educational and measurement company, used eCollege's automated solutions to allow institutions to measure the progress of their educational programs. The relationship has already led to a deal with Florida Community College, one of the nation's fastest-growing community colleges.
Why are companies willing to partner with eCollege? Its services let an educational institution focus on its core strength: quality content and instructors. Building a sophisticated technology solution would be much more expensive than licensing technology as robust as eCollege's suite.
eCollege's Datamark division also helps institutions increase enrollment and student retention. Its technology manages spending on advertising -- bulk-mail and interactive -- and provides systems to convert leads into enrolled students.
In this business segment, the company experienced a slowdown that it expects will continue in the second quarter. On the conference call, management indicated that there has been a shift to interactive marketing, but not enough to make up for the shortfall in traditional media.
As a result, eCollege provided lower guidance for the second quarter. The company expects net income between $600,000 and $800,000, or $0.03 to $0.04 per share. Revenue is projected at $24.1 million to $24.5 million. The company did reaffirm its full-year guidance, though.
The company expects Datamark to renew its growth in the second half of 2005. However, Wall Street is more skeptical, and perhaps the slowdown may last longer. The stock has fallen more than 10% since the news.
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Fool contributor Tom Taulli does not own stocks mentioned in this article.
